Microeconomics chap 8,9,10,11

(chap 8)(Appendix) The defining characteristics of increasing returns to scale may be summarized as A. F(cK,cL) > cF(K,L). B. F(cK,cL) = cF(K,L). C. F(cK,cL) < cF(K,L). D. Q = min(aK,aL).

A. F(cK,cL) > cF(K,L).

(Chap 10) In the long run for a competitive firm, A. the firm is at the bottom of its short run average cost curve. B. the firm is at the top of its long run average cost curve. C. the marginal cost is greater price. D. the firm is making economic profits.

A. the firm is at the bottom of its short run average cost curve.

(Chap 10) In a competitive industry, the industry's short-run supply curve is A. the horizontal sum of the marginal cost curves. B. the vertical sum of the marginal cost curves. C. determined by the average total cost curve. D. determined by the average variable cost curve.

A. the horizontal sum of the marginal cost curves.

(Chap 9)If the total cost function is TC = 10Q3 - 50Q2 + 1000Q + 500, what is the equation for ATC?

ATC = 10Q2 - 50Q + 1000 + 500/Q

(ch. 9)Say at the current output level marginal costs = $20 and the average total cost = $10. From this information we know that the A. marginal costs are increasing. B. average total costs are increasing. C. average total costs are decreasing. D. marginal costs are decreasing.

B. average total costs are increasing.

(chap 8)Karl has a home business that consists of only himself and his computer. If he were to analyze his operations in the form of a long run production function his isoquants would A. be straight lines with a negative slope. B. be L shaped. C. be concave from above. D. be straight lines with a positive slope.

B. be L shaped.

(Chap 10) In the short run, a tax placed on a perfectly competitive industry should A. increase the total amount of the good sold. B. decrease the total amount of the good sold. C. not affect the total amount of the good sold. D. always increase the price.

B. decrease the total amount of the good sold.

(chap 8)In the production of bicycles an increase of 2 percent in the level of capital and labor respectively will generate an increase of 1 percent in the production of bicycles. From this information we know that the production of bicycles exhibits A. diminishing marginal returns. B. decreasing returns to scale. C. increasing returns to scale. D. constant returns to scale.

B. decreasing returns to scale.

(ch. 9)The short run total cost of zero output is equal to A. variable cost. B. fixed cost. C. zero. D. variable cost plus fixed cost.

B. fixed cost.

(chap 8)In a typical short-run production function, before diminishing returns set in, the slope of the total product curve A. is decreasing. B. is increasing. C. rises and then falls before diminishing returns sets in. D. falls and then rises before diminishing returns sets in.

B. is increasing.

(Chap 11) If a profit maximizing monopolist sells output for $100, then we know that its marginal revenue is A. more than $100 if it is a perfect price discriminator. B. less than $100 if it is a single price monopolist. C. equal to $100 in all cases. D. less than $100 if it is a perfect price discriminator.

B. less than $100 if it is a single price monopolist.

(Chap 11) The marginal revenue curve of a single price monopolist A. lies above the demand curve. B. lies below the demand curve. C. lies along the demand curve. D. is a horizontal line.

B. lies below the demand curve.

(Chap 10) Which of the following is not a condition for perfect competition? A. Firms take prices as given. B. Firms sell a standardized product. C. Firms are protected by barriers to entry. D. Firms have perfect information.

C. Firms are protected by barriers to entry.

(Chap 11) Monopoly is characterized by A. many close substitutes. B. no barriers to entry. C. a downward sloping demand curve. D. a horizontal demand curve.

C. a downward sloping demand curve.

(chap 8)If capital and labor are perfect substitutes in a production function, the isoquants for this function will be A. concave from above. B. convex from above. C. a straight line. D. any one of these depending on the particular combination of labor and capital employed.

C. a straight line.

(Chap 10) At point D, the firm is A. maximizing its profit. B. losing money. C. breaking even. D. making money.

C. breaking even.

(Chap 10) Say a competitive firm is producing at point where ATC = $10, AVC = $2. If the firm charges $5 for its output, then in the short-run this firm should A. shutdown production. B. exit the industry. C. continue to operate. D. try to reduce its fixed costs.

C. continue to operate.

(ch. 9)Average fixed cost A. is a horizontal line. B. increases steadily as output increases. C. decreases steadily as output increases. D. exhibits diminishing returns.

C. decreases steadily as output increases.

(ch. 9)The MC curve slopes upward due to A. increasing returns to scale. B. decreasing returns to scale. C. diminishing returns. D. constant returns to scale.

C. diminishing returns.

(Chap 11) The supply curve for a monopolist A. is upward sloping. B. is vertical. C. does not exist. D. is downward sloping.

C. does not exist.

(chap 8) In a typical production function, the relevant factors of production are land, labor, capital, and A. raw materials. B. technology. C. entrepreneurship. D. resources.

C. entrepreneurship.

(ch. 9)At one unit of output AVC is A. zero. B. infinite. C. equal to marginal cost. D. less than marginal cost.

C. equal to marginal cost.

(Chap 11) A profit maximizing monopolist faces the following information: P = $4, MR = $2, MC = $1.50. The firm should A. shut down. B. decrease output. C. increase output. D. stay at its current level of output.

C. increase output.

(chap 8)In the long run A. all inputs are fixed. B. only capital inputs are fixed. C. all intermediate goods are fixed. D. all inputs are variable.

D. all inputs are variable.

(Chap 10) How can a firm stay in business if it makes no economic profit in the long run?

Economic profit is money above the full opportunity cost of the resources employed. That means that the owners are fairly compensated for their opportunity costs of time and capital as part of the total cost function.

(Chap 9)The total cost function is TC = Q3 - 6Q2 + 14Q + 75. When does diminishing returns to production set in?

The marginal cost curve is 3Q2 - 12Q + 14 and the first derivative of the MC curve is 6Q - 12 so if set to zero to find the minimum and the point where diminishing returns sets in the result is 6Q - 12 = 0 and 6Q = 12 so Q = 2.

(Chap 11) The profit maximizing markup (over MC) is given by A. 1/elasticity. B. elasticity. C. elasticity2. D. elasticity + 1.

A. 1/elasticity.

(Chap 11) Under rate of return regulation, A. P = MC. B. P = ATC. C. P = AVC. D. P > ATC.

B. P = ATC.

(chap 8)(Appendix) Which of the following production functions exhibits increasing returns to scale? A. Q = K1/2Ll/2 B. Q = Kl/2L2/3 C. Q = Kl/4Ll/3 D. Q = K/L

B. Q = K^l/2L^2/3

(ch. 9)ATC equals A. AVC - AFC. B. FC/Q. C. (TFC + TVC)/Q. D. MC + AFC.

C. (TFC + TVC)/Q.

(Chap 11) Explain why price discrimination solves the welfare loss problem of monopoly, but then describe the downside of solving the welfare loss problem this way.

By perfectly price discriminating, the monopolist moves quantity produced past the single price monopoly output to the perfect competitive solution. Thus the dead weight loss in consumer welfare disappears. However, by price discriminating the producer takes all the consumer surplus for himself so there is a significant redistribution of welfare from the consumer to the producer.

(Chap 11) If a profit maximizing monopolist faces a linear demand curve and has zero marginal cost, it will produce where demand elasticity is __________________ if it will produce at all. A. inelastic B. elastic C. 1 D. Information is inadequate to answer the question.

C. 1

(ch. 9)Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the variable cost of producing 80 units of output? A. $200 B. $33 C. $25 D. $85

C. $25

(Chap 11) If a profit maximizing monopolist faces a linear demand curve and has zero marginal cost, it will produce at A. the lowest point of marginal revenue curve. B. elasticity of demand equals 1. C. the lowest point of marginal profit curve. D. All of the choices are correct.

D. All of the choices are correct.

(Chap 10) The elasticity of supply is given by A. change in Q/change in P * p/q B.p/q * 1/slope C.change in q/q /change in p/p D. All of these are correct.

D. All of these are correct.

(ch. 9)Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the total cost of producing 80 units of output? A. $525 B. $200 C. $233 D. $225

D. $225

(chap 8)(Appendix) Suppose the production function for widgets is Q = (KL)½. If capital is fixed at 4 units, what is the marginal product of labor when you produce 10 units of output? A. 0.4 B. 1 C. 1.5 D. 0.2

D. 0.2

(Chap 11) The demand equation for a single price monopolist is P = 120 - 3Q. The marginal revenue curve for this monopolist is A. 120 - 1.5Q. B. 60 - 3Q. C. 60 - 6Q. D. 120 - 6Q.

D. 120 - 6Q.

(Chap 11) If the firm facing the demand curve P = 10 - Q still has zero marginal costs and is now a perfect price discriminator instead of a single price monopolist, what will profits be if fixed costs are 12? A. 10 B. 12 C. 13 D. 38

D. 38

(Chap 11) In the diagram below, the profit maximizing price level is A. 1. B. 2. C. 3. D. 4.

D. 4.

(Chap 10)When the perfectly competitive firm maximizes profits the price of its product always equals A. average revenue. B. marginal revenue. C. marginal costs. D. All of the choices are correct

D. All of the choices are correct

(ch. 9)Gravel is made by hand in Nepal, but by machine in the U.S. because A. the marginal product of labor is higher in Nepal than in the U.S. B. capital is much more expensive in the U.S. than in Nepal. C. of consumer preferences. D. the relative prices of labor and capital differ so dramatically in the two countries.

D. the relative prices of labor and capital differ so dramatically in the two countries.

(Chap 10) In the long run, A. the firm will operate at point B. B. the firm will operate at point C. C. the firm will operate at point D. D. the total revenue curve will change its slope.

D. the total revenue curve will change its slope.

(ch. 9)Total cost is broken down into two components: A. average cost and marginal cost. B. average cost and fixed cost. C. variable cost and marginal cost. D. variable cost and fixed cost.

D. variable cost and fixed cost.

(Chap 11) In the long-run, profit maximizing monopolists A. price where MC and price are equal. B. never make positive economic profits. C. produce where average total costs are minimized. D. will produce where MC is below long run ATC.

D. will produce where MC is below long run ATC.

(Chap 9)If the total cost function is TC = 10Q3 - 50Q2 + 1000Q + 500, what is the equation for MC? MC = 30Q2 - 100Q + 1000

MC = 30Q2 - 100Q + 1000

(Chap 10) essay A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC = 200 + .3Q. The demand curve faced by the industry is given as P = 400 - .1Q. How much profit is each firm making if fixed costs are $375 per firm?

This question requires one to go from the MC to the total cost curve which will be TC = 200Q + 15Q + 375. Total costs are $1,750 per firm and revenue is $350 × $5 which is $1,750. Thus no economic profit exists.

(Chap 10) essay The Agriculture industry is often used as an example of a competitive market model. However, of the four conditions required for perfect competition, one is clearly not present in farming. Which one is the least applicable and why does it not fit the model?

While most agricultural products are standardized and farmers are price takers, ease of entry and exit are quite difficult. High fixed costs of land and equipment make it hard to enter and exit easily.

(ch. 9)If the variable cost curve is a straight line, then the A. marginal cost curve will be U-shaped. B. marginal cost curve may be U-shaped. C. marginal cost curve will be horizontal. D. marginal cost curve is upward sloping.

C. marginal cost curve will be horizontal.

(Chap 10) A standardized product is a product A. that has many perfect substitutes. B. that is unique to one producer. C. which is produced according to government regulations. D. where the demand function is downward sloping for both the firm and the industry.

A. that has many perfect substitutes.

(Chap 10) A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC = 200 + .3Q. The demand curve faced by the industry is given as P = 400 - .1Q. What is the producer surplus for each firm?

(150 × 5)/2 = 375. The point here is that producer surplus can be made even if no economic profit is made. It is no coincidence that the producer surplus is equal to the fixed cost.

(chap 8)The rate at which one input can be exchanged for another without altering output is called A. the slope of the total product curve. B. the marginal rate of technical substitution. C. the slope of the marginal product of labor. D. the law of diminishing returns of labor.

B. the marginal rate of technical substitution.

(Chap 11) If the demand curve is P = 48 - 2Q and MC = 0, calculate the lost social welfare that results from a single price monopoly profit maximizing strategy.

A monopolist will have MR = 48 - 4Q and 0 MC so quantity will be 12 and price 24. A perfect competitor will have price bid down to zero. The welfare triangle lost will be the area under the demand curve from price 24 to 0. This means 12 fewer items are produced so 24 times 12 divided by 2 gives the area of the welfare loss triangle.

(Chap 11) essay A single price monopolist has a demand curve: P = 500 - 50Q. It has the total cost curve: TC = 1000 + 100Q. If the firm is a profit maximizer or loss minimizer, what output and price should it plan for?

500 - 100Q = 100, 400 = 100Q, Q = 4, P = 300

(ch. 9)Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the total fixed cost of producing 80 units of output? A. $200 B. $33 C. $25 D. $85

A. $200

(Chap 10) I get $200 revenue from the sale of my product each day. I rent the factory that I use for $90 a day. The raw materials of the operation cost $115 a day. I do all the work myself. Both jobs are equally attractive as far as the work is concerned. Recently, a competitor offered me $30 a day to work for him. My accounting profit is ____, and my economic profit is _____. A. -5; -35 B. -35; -35 C. 25; -5 D. 110; -30

A. -5; -35

(Chap 11) In the diagram below, the profit maximizing output level is A. 0A. B. 0B. C. 0C. D. It is impossible to say.

A. 0A.

(Chap 9)Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of output. Subsequent hires add 5 units less to production than the previous worker. Thus the second worker adds 15, the third adds 10 etc. What is the average variable cost of output when one worker is hired? A. 1 B. 20 C. 24.50 D. None of these is the correct AVC.

A. 1

(Chap 11) A single price monopoly that faces the demand curve P = 10 - Q and profit maximizes by reducing price from $6 to $5 must have a marginal cost of A. 1. B. 5. C. 6. D. 10.

A. 1.

(chap 8)Say you own a Mexican place that produces, among other things, Mexican burritos. The marginal product of your last worker was 5. If the marginal rate of technical substitution between capital and labor is 0.5, then marginal product of capital is A. 10. B. 5. C. 1. D. we can't say with the information given

A. 10.

(Chap 10) Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 - 0.9Q. How many units of output will be produced by a firm operating in this market with a MC = 130Q? A. 2 B. 5 C. 0.70 D. It is impossible to answer with the information given

A. 2

(Chap 11) Say a monopolist sells in two separate markets, with demand PA = 100 - 2Q and PB = 50 - Q respectively. Marginal costs in both markets are constant and equal to 8. The monopolist would charge a price of _______ in market B in order to maximize profits. A. 29 B. 21 C. 8 D. 0

A. 29

(Chap 11) If the monopolist facing the demand curve P = 10 - Q is a perfectly discriminating monopolist and marginal cost is constant at $4, how much will the firm sell if it profit maximizes? A. 6 B. 5 C. 4 D. 10

A. 6

(Chap 11) A monopolist has a marginal revenue curve given by MR = 102 - Q, and a total cost curve given by TC = Q2 + 16. The monopolist's profit maximizing price and quantity are _______, _____ respectively. A. 85; 34 B. 52; 50 C. 100; 2 D. 77; 50

A. 85; 34

(Chap 11) Suppose you own a firm that produces widgets and is a monopoly. The market demand is given by the equation P = 100 - 2Q, where P is the price of gadgets and Q is the quantity of gadgets sold per week. The firm's marginal costs are given by the equation MC = 16Q. When the monopolist maximizes profits the price elasticity of demand for widgets is A. 9. B. 36. C. 0.5. D. 0.02.

A. 9.

(Chap 11) Which statement is true for a profit maximizing monopolist? A. It always faces a downward sloping demand curve. B. It can avoid diminishing returns to production. C. It will not produce where marginal cost equals marginal revenue. D. It can charge whatever price it wants.

A. It always faces a downward sloping demand curve.

(chap 8)The isoquant mapping for perfect complements in production is A. L-shaped. B. a straight line. C. a ray passing through the origin. D. concave.

A. L-shaped.

(Chap 10) At point A, A. MC = MR. B. The firm is making positive economic profit. C. The firm would do worst by shutting down. D. MC > MR.

A. MC = MR.

(Chap 11) A profit maximizing monopolist sets output where A. MC = MR. B. MC = P. C. MC = demand. D. it depends on the average costs in each case.

A. MC = MR.

(Chap 10) The profit maximizing output level for a perfectly competitive firm is always where A. P = MC. B. P = AVC. C. MC = ATC. D. MC = AVC.

A. P = MC.

(chap 8)Which is true? A. Production functions consider only the value added part of a particular production process. B. Production functions are as subjective as utility functions. C. Production functions count raw materials, but not labor, as inputs into the production process. D. Production functions do not count technology into the production process.

A. Production functions consider only the value added part of a particular production process.

(Chap 10)In the graph below at a price of P*, the profit maximizing level of output is A. Q*. B. above Q*. C. below Q* but above zero. D. zero.

A. Q*.

(Chap 10) Joe is self-employed in a store that has a rental value of $500 a month which he pays, but he can vacate the building without giving notice. His other expenses are $100 a month for maintenance. He makes $25,000 a year on net sales (total revenue minus the wholesale cost of the product). If he quit his job and worked the same number of hours elsewhere at a job he liked equally well, he estimates that he could make $20,000 a year. No one else can be hired to work in the store. Suppose that the store owner gave Joe the store. Now what should he do? A. Quit his job. B. Keep the job. C. Work part-time. D. It is impossible to say with the information given in the problem.

A. Quit his job.

(ch. 9)The following is true about point A for a firm with the I1 isocost curve. A. The firm is minimizing the costs of production. B. Capital is relatively more expensive than labor. C. Labor has a lower marginal product than capital. D. All of the choices are true.

A. The firm is minimizing the costs of production.

(Chap 11) A natural monopoly always has A. a downward sloping long run average cost curve. B. a downward sloping marginal cost curve. C. its profit maximization point where price = marginal cost. D. patent rights.

A. a downward sloping long run average cost curve.

(Chap 11) If the demand curve for a single price monopolist always is a downward sloping straight line, then marginal revenue will be A. a straight line with a negative slope of twice the demand curve slope. B. a straight line with a negative slope of one-half the demand curve slope. C. identical to the demand curve. D. a horizontal line.

A. a straight line with a negative slope of twice the demand curve slope.

(Chap 10) Producer surplus is given by the area A. above the supply curve but below the price. B. below the supply curve. C. below the demand curve but above the price. D. below the demand curve.

A. above the supply curve but below the price.

(ch. 9)The AFC curve A. always slopes downward. B. is U-shaped. C. is a horizontal line. D. is the same as the total fixed cost curve.

A. always slopes downward.

(ch. 9)Suppose you have the following values for a short-run production process: Q = 20, VC = 100, FC = 600 and MC = 40. Given this, we know that the A. average cost curve must be increasing. B. average cost curve must be decreasing. C. marginal cost curve must be increasing. D. marginal cost curve must be decreasing.

A. average cost curve must be increasing.

(chap 8)Suppose you are using 10 units of labor in your short-run production process. At this point, the average product of your labor is 10, and the marginal product of the last unit of labor was 14. Given this, we know that the A. average product of labor must be increasing. B. average product of labor must be decreasing. C. marginal product of labor must be increasing. D. marginal product of labor must be decreasing.

A. average product of labor must be increasing.

(ch. 9)When marginal cost is greater than average total cost, A. average total cost must be increasing with output. B. average variable cost must be decreasing with output. C. average fixed cost must be increasing with output. D. marginal cost must be increasing with output.

A. average total cost must be increasing with output.

(Chap 11) If the owner of the firm, shown above is a profit maximizer, the firm should ______ in the short run. A. continue to operate at the existing output B. shutdown C. expand output to lower costs D. More data is needed to say definitively what the firm should do.

A. continue to operate at the existing output

(Chap 11) A single-price monopolist with a positive marginal cost will maximize profit by producing where A. demand is price elastic. B. demand is price inelastic. C. demand is unit elastic. D. Any of these may apply.

A. demand is price elastic.

(Chap 10) Competitive markets result in allocative efficiency because they A. exhaust all possibilities for mutually beneficial trade. B. exhaust all possible benefits for the consumer. C. generate all possible benefits for the consumers. D. distribute resources in the most equitable way.

A. exhaust all possibilities for mutually beneficial trade.

(Chap 10) Ceteris paribus, in the long run, a tax placed on a perfectly competitive industry will A. increase the price of the good by an amount equal to the tax. B. increase the price of the good by an amount less than the tax. C. be borne entirely by the firm. D. be entirely borne by the consumer.

A. increase the price of the good by an amount equal to the tax.

(Chap 10)The demand curve facing a perfectly competitive firm is A. infinitely elastic. B. perfectly inelastic. C. downward sloping. D. perfectly elastic.

A. infinitely elastic.

(ch. 9)The total fixed cost function A. is horizontal. B. is U-shaped. C. is an upward sloping line. D. is a downward sloping line.

A. is horizontal.

(chap 8)Geometrically, the average product A. is the slope of the line joining the origin to the specified point on the total product curve. B. at any point is the slope of the total product curve at that point. C. is that point at which the total product curve exhibits diminishing returns. D. falls at low levels of input use and rises at high levels of input use.

A. is the slope of the line joining the origin to the specified point on the total product curve.

(Chap 9)The minimum efficient scale of production is the level of production required for the A. long run average curve to reach its minimum. B. variable cost curve to reach its minimum. C. marginal cost curve to reach its minimum. D. average cost curve to reach its minimum.

A. long run average curve to reach its minimum.

(Chap 9) Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of output. Subsequent hires add 5 units less to production than the previous worker. Thus the second worker adds 15, the third adds 10 etc. If the fifth laborer adds 25 units to the short run production output and the sixth laborer adds 20 units to the total output and the firm can hire all the labor it wants at the going wage we can be sure that A. marginal cost is increasing. B. average total cost is increasing. C. average variable cost is increasing. D. None of these is correct because all the costs listed are decreasing.

A. marginal cost is increasing.

(ch. 9)Output for a simple production process is given by Q = KL, where K denotes capital and L denotes labor. The price of labor is $10 per unit and the price of capital is $2 per unit. If at the current level of production the marginal product of labor is 4 while the marginal product of capital is 2, then in order to minimize your costs of production you should use A. more capital and less labor. B. more labor and less capital. C. more of both inputs. D. the same amount of both inputs.

A. more capital and less labor.

(chap 8)From an isoquant map, one can illustrate diminishing returns to production by A. observing the slope of the isoquant as one moves outward on the labor axis but stays at the same point on the capital axis. B. following the curvature of an individual isoquant. C. moving from isoquant to isoquant along a ray from the origin. D. constructing a positively sloped isoquant.

A. observing the slope of the isoquant as one moves outward on the labor axis but stays at the same point on the capital axis.

(chap 8)The short run is defined as that period of time during which A. one or more inputs cannot be freely varied. B. all inputs are variable. C. all inputs are fixed. D. labor is counted as a fixed input.

A. one or more inputs cannot be freely varied.

(Chap 11) In second-degree price discrimination it is true that A. people who buy a lot pay a lower price. B. people who buy relatively little pay a lower price. C. the monopolist cannot earn economic profits. D. the market need not be segmented.

A. people who buy a lot pay a lower price.

(chap 8)In a short-run production function before diminishing returns set in, both MPL and APL will have A. positive slopes and MPL will lie above APL. B. positive slopes and APL will lie above MPL. C. negative slopes and MPL will lie above APL. D. negative slopes and APL will lie above MPL.

A. positive slopes and MPL will lie above APL.

(Chap 10) In a decreasing cost industry, as output grows over time, A. prices will fall. B. prices will rise. C. prices will stay the same. D. prices are zero.

A. prices will fall.

(Chap 10) When the price is P1, in order to maximize profits this firm must produce a quantity equal to A. q1. B. q2. C. q3. D. Q1.

A. q1.

(Chap 10)Joe is self-employed in a store that has a rental value of $500 a month which he pays, but he can vacate the building without giving notice. His other expenses are $100 a month for maintenance. He makes $25,000 a year on net sales (total revenue minus the wholesale cost of the product). If he quit his job and worked the same number of hours elsewhere at a job he liked equally well, he estimates that he could make $20,000 a year. No one else can be hired to work in the store. Joe should A. quit his job. B. keep the job. C. work part-time. D. It is impossible to say with the information given in the problem.

A. quit his job.

(ch. 9) A firm that is trying to produce a given level of output Q0 at the lowest possible cost will A. select the input combination at which an isocost line is tangent to the Q0 isoquant. B. select the input combination at which an isocost line is above the Q0 isoquant. C. select the input combination at which an isocost line is below the Q0 isoquant. D. choose to produce at a level where variable costs are less than or equal to fixed costs.

A. select the input combination at which an isocost line is tangent to the Q0 isoquant.

(Chap 10) In the long run, any perfectly competitive firm that produces will choose a quantity such that A. short run average cost is minimized. B. long run total cost is minimized. C. long run marginal cost is less than short run marginal cost. D. price is greater marginal cost.

A. short run average cost is minimized.

(Chap 10)If a firm's demand curve falls below its AVC curve, then the firm should A. shut down now. B. operate in the short run but not the long run. C. set price = marginal cost. D. shutdown in the long-run.

A. shut down now.

(Chap 10) The output where MC = AVC is called the A. shutdown point. B. break-even point. C. profit maximizing point. D. revenue maximizing point.

A. shutdown point.

(Chap 10) A firm is currently selling its product at $20 each. It estimates that its average total cost of production is $100 and its average fixed cost is $40. In the short run the firm should A. shutdown. B. continue production at a point where P = MC. C. hire more employees. D. buy more capital.

A. shutdown.

(Chap 10) Other things remaining the same, in the long-run as compared to the short-run A. supply elasticity will increase. B. supply elasticity will decrease. C. supply elasticity will remain the same. D. one cannot tell.

A. supply elasticity will increase.

(chap 8)If the contribution to output of an additional unit of the variable input exceeds the average contribution of the variable inputs used, A. the average contribution must rise. B. the average contribution must fall. C. the total product will begin to decline. D. the average product will be at its minimum.

A. the average contribution must rise.

(chap 8)When the marginal product curve lies below the average product curve, A. the average product curve must be falling. B. the total product curve must be falling. C. the average product curve must be rising. D. the marginal product curve must be rising.

A. the average product curve must be falling.

(Chap 11) I frequently buy something which then has a rebate offer attached. I must fill in all the information requested, send off the form and then wait 8 weeks for the rebate. This practice is referred to as A. the hurdle model of price discrimination. B. exclusive contracting. C. a profit maximizing markup. D. network economics.

A. the hurdle model of price discrimination.

(chap 8)If the owner of an ice-cream stand told a student looking for summer work that he would not hire him even if he worked for nothing, we can infer that A. the marginal product of the labor is zero or less. B. the average product of labor is rising. C. the marginal product of labor is rising. D. the owner is producing at the lowest cost.

A. the marginal product of the labor is zero or less.

(ch. 9)Whenever the ratio of marginal products to input prices differs across inputs, A. the marginal products of inputs will adjust as input combinations change to correct for the inefficiency. B. no change will necessarily follow because the process could still be at peak efficiency. C. a firm's costs could be reduced by shifting input usage toward the input with the lower marginal product to price ratio. D. the costs of the inputs adjust to bring the marginal product ratios and cost ratios together.

A. the marginal products of inputs will adjust as input combinations change to correct for the inefficiency.

(Chap 11) If a firm could perfectly price discriminate, A. the marginal revenue curve would be the same as the demand curve. B. the marginal revenue curve would lie below the demand curve. C. the marginal revenue curve would lie above the demand curve. D. there would be no marginal revenue function.

A. the marginal revenue curve would be the same as the demand curve.

(ch. 9)Average variable cost is A. the ratio of total variable cost to the quantity of output produced. B. the ratio of variable cost to total cost. C. the ratio of variable cost to fixed cost. D. the difference between variable and fixed cost.

A. the ratio of total variable cost to the quantity of output produced.

(ch. 9)If the total variable cost curve is a straight line then the A. total cost curve will also be a straight line. B. total cost curve may or may not be a straight line. C. marginal cost function is downward sloping. D. marginal cost function is upward sloping.

A. total cost curve will also be a straight line.

(chap 8)In conceptual production functions, technological change is A. treated like an addition to the capital stock. B. treated as a movement upward along a given production function. C. a factor that eliminates diminishing returns to a production function. D. not considered and is therefore assumed to be constant in all deliberations.

A. treated like an addition to the capital stock.

(ch. 9)MC equals A. ΔTC/ΔQ. B. ΔVC/ΔQ. C. FC/Q. D. VC/Q.

A. ΔTC/ΔQ.

(Chap 9)If the total cost function is TC = 10Q3 - 50Q2 + 1000Q + 500, what is the equation for AFC?

AFC = 500/Q

(Chap 9)If the total cost function is TC = 10Q3 - 50Q2 + 1000Q + 500, what is the equation for AVC?

AVC = 10Q2 - 50Q + 1000

(chap 9) Suppose output for a simple production process is given by Q = K + L, where K denotes capital, and L denotes labor. The price of labor is $2 per unit and the price of capital is $4 per unit. What would be the minimum costs of producing 10 units of output? A. $40 B. $20 C. $10 D. It is impossible to say with the information given

B. $20

(ch. 9)Let the TC curve be given by the equation TC(Q) = 10 + 5Q. The average variable cost can be expressed as A. 10. B. (10/Q) + 5. C. 10 + (5/Q). D. It cannot be determined.

B. (10/Q) + 5.

(ch. 9)Let the TC curve be given by the equation TC(Q) = 5 + Q. The ATC curve can be expressed as A. (1/Q) + 5. B. (5/Q) + 1. C. 5. D. Q.

B. (5/Q) + 1.

(ch. 9)Let TC(Q) = 10 + Q; MC equals A. 10. B. 1. C. 11. D. It cannot be determined from the information given

B. 1.

(chap 8)Say you own a Mexican place that produces, among other things, Mexican burritos. Your production of burritos is given by the equation Q = 6KL2, where Q is the amount of burritos, K is the amount of capital and L is the amount of labor. How many workers would you need to use in order to minimize the cost of producing 100 burritos when the capital is, K, is 20? A. 1 B. 2 C. 4 D. 0

B. 2

(chap 9)Output for a simple production process is given by Q = KL, where K denotes capital and L denotes labor. The price of labor is $10 per unit and the price of capital is $2 per unit. Suppose at the current level of production the firm is minimizing costs and the marginal product of labor is 10. Given this you know that the marginal product of capital must be A. 5. B. 2. C. 10. D. It is impossible to say with the information given

B. 2.

(chap 8)Suppose that at a firm's current level of production the marginal product of capital is equal to 10 units, while the marginal rate of technical substitution between capital and labor is 2. Given this, we know the marginal product of labor must be A. 5. B. 20. C. 10. D. It is not possible to say with the information given in the problem

B. 20.

(Chap 11) Say a monopolist sells in two separate markets, with demand PA = 100 - 2Q and PB = 50 - Q respectively. Marginal costs in both markets are constant and equal to 8. The profit maximizing quantity of output in market A would be A. 46. B. 23. C. 21. D. 5.

B. 23.

(Chap 11) The demand equation for a single price monopolist is P = 50 - Q. The marginal revenue equation for this monopolist is A. 25 - Q. B. 50 - 2Q. C. 50 - Q. D. 100 - Q.

B. 50 - 2Q.

(Chap 11) Which of the following is not true? A. A monopolist typically seeks to maximize profits. B. A monopolist can set price at arbitrarily high levels. C. Economies of scale are the cause of natural monopolies. D. Monopolists price on the elastic portion of their demand curves.

B. A monopolist can set price at arbitrarily high levels.

(Chap 11) Which of the following could not be considered price discrimination? A. The issuing of discount tickets to week-end travelers. B. Airlines offering super-saver fares to everyone. C. Movies offering cheap matinees. D. Senior citizen's discounts.

B. Airlines offering super-saver fares to everyone.

(Chap 9)Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of output. Subsequent hires add 5 units less to production than the previous worker. Thus the second worker adds 15, the third adds 10 etc. Which of the following is a true statement? A. At an output of 20 the total cost is $20. B. Average total cost at an output of 50 is 11. C. Average fixed cost is 10 when output is 45. D. Marginal cost keeps falling as the number of laborers hired increases.

B. Average total cost at an output of 50 is 11.

(Chap 10) In the long run, a tax placed on a perfectly competitive industry should have what effect on the entire market? A. Increase the total amount of the good sold. B. Decrease the total amount of the good sold. C. Not affect the total amount of the good sold. D. One cannot tell.

B. Decrease the total amount of the good sold.

(Chap 10)Which statement is true of the graph shown? A. The marginal cost curve should not cross the AFC while it is falling. B. If an ATC curve was drawn in the graph it would intersect the MC curve but not any other curve. C. The shut down point of the firm would be at an output more than Q*. D. The marginal cost curve crosses the AFC curve at the lowest point of the AFC curve.

B. If an ATC curve was drawn in the graph it would intersect the MC curve but not any other curve.

(Chap 11) Which is true of a single price monopoly firm? A. Its supply curve is equal to its marginal cost function. B. It creates more welfare loss to society than a perfect price discriminating monopolist. C. Its shutdown point is where ATC = price. D. An increased profits tax will lower the quantity the firm will produce.

B. It creates more welfare loss to society than a perfect price discriminating monopolist.

(chap 8)On an isoquant, the MRTS is defined as A. |change in K/change in L| B. MPK/MPL at the relevant point on the isoquant. C. MPL * MPK. D. MP + MPL.

B. MPK/MPL at the relevant point on the isoquant.

(Chap 11) All of the following are true about a monopolist except: A. Average and marginal revenues are not the same. B. Marginal revenue is greater than price. C. Marginal revenue decreases with increases in output. D. Marginal revenue can be negative.

B. Marginal revenue is greater than price.

(Chap 11) Which of the following is false? A. Profit is maximized when MR = MC for both monopolies and perfect competition firms B. Monopolies profit maximize and perfect competitive firms output maximize C. Both monopolies and perfect competition firms earn zero profit in the long run D. At equilibrium, price is higher than marginal cost for monopolies but not for competitive firms

B. Monopolies profit maximize and perfect competitive firms output maximize

(Chap 10) Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 - 0.9Q. What is the industry supply curve? A. P = 500 + Q B. P = 50 + 0.1Q C. P = -500 + 10P D. P = 50 + 10 Q

B. P = 50 + 0.1Q

(Chap 11) Which of the following would erode the monopoly pricing power of a firm that was controlling a market? A. New technology developed by the firm that lowered long run average costs. B. The development of substitutes for the product by other firms. C. A tax on corporate profits. D. All of these would reduce the monopoly power of the firm.

B. The development of substitutes for the product by other firms.

(Chap 11) The total revenue curve for a firm is given by TR = 2Q. A. The firm is definitely a monopolist. B. The firm is definitely not a monopolist. C. The firm may be a monopolist or a perfectly competitive firm. D. One cannot tell from the equation what market form applies.

B. The firm is definitely not a monopolist.

(chap 8)On this chapter quiz for this course you can study for up to four hours. If you don't study at all you will get a 70. One hour would give you an 80, the second hour increased your score to 89, the third to 92. If you studied the fourth hour your score would be 87. In which hour did diminishing returns set in? A. The first because the score was the lowest of the studying options. B. The second because your gain is less than the previous hour. C. The third because your score peaked there. D. The fourth because you had a drop in points in this hour.

B. The second because your gain is less than the previous hour.

(Chap 10) In the graph shown below, if the market demand were to shift right, which of the following would occur for the firm? A. The total cost curve would shift downward. B. The total revenue function would rotate upward. C. The total revenue function would rotate downward. D. The firm would produce less output.

B. The total revenue function would rotate upward.

(Chap 10) Assume a perfectly competitive economy would use an assortment of nails that weighs a total of 100 tons. However, the economy is controlled by the government and it sets a ton limit of 100 tons. When production is complete there is only one nail that weighs 100 tons. Which of the following describes what was wrong when government did the planning? A. Producers did not follow their personal interest in planning production. B. The wishes of consumers were not represented in the producer's actions. C. The government miscalculated the correct tonnage that the economy needed. D. All of these are true.

B. The wishes of consumers were not represented in the producer's actions.

(Chap 10) Which is not true of a perfectly competitive market? A. The typical industry demand curve is downward sloping. B. There is no incentive to innovate since economic profit is zero in the long-run. C. If the long-run average total cost curve is horizontal in the relevant range of production, perfectly competitive firms can be various sizes in long-run equilibrium. D. At long-run equilibrium, economic profit is less than accounting profit.

B. There is no incentive to innovate since economic profit is zero in the long-run.

(chap 8)Which of the following statements about isoquant maps is true? A. They can illustrate diminishing returns to production only when they have numerical values attached. B. They cannot illustrate economies of scale unless some numerical values are attached. C. They always have positive slope. D. They always have negative slope.

B. They cannot illustrate economies of scale unless some numerical values are attached.

(ch. 9)Assume initially this firm is at point A. The following would be a reason for a movement to point B. A. Wages go up and per unit capital costs go up. B. Wages go down and per unit capital cost go up. C. Both wages and per unit capital costs go down. D. Output decreases.

B. Wages go down and per unit capital cost go up.

(Chap 10) The expansion of the car manufacturing industry causes an improvement in the assembly line system, thus reducing costs to each firm in that industry. This is an example of A. constant returns to scale. B. a decreasing-cost industry. C. a decreasing returns to scale. D. an increasing-cost industry.

B. a decreasing-cost industry.

(ch. 9)With constant returns to scale and factor prices invariant with the amount of factors used, the long-run output expansion path is A. horizontal. B. a straight line. C. U-shaped. D. zero.

B. a straight line.

(Chap 10) In a competitive industry in the long-run, it is likely that A. firms with the advantage of location or an especially skilled work crew will be the lone survivors in equilibrium. B. all firms giving their best effort will have the same LAC regardless of location or the unique skills of some workers. C. the firms with the poorest location will be the lone survivors in equilibrium because their location cost will be lowest. D. only one large efficient firm can survive.

B. all firms giving their best effort will have the same LAC regardless of location or the unique skills of some workers.

(Chap 10) A pecuniary diseconomy occurs when A. supply exceeds demand. B. an expansion of industry output increases the price of an input. C. higher output levels results in lower unit costs. D. higher output levels results in the same unit costs.

B. an expansion of industry output increases the price of an input.

(chap 8)Geometrically, the marginal product A. is the slope of the line joining the origin to the corresponding point on the total product curve. B. at any point is the slope of the total product curve at that point. C. is that point at which the total product curve exhibits diminishing returns. D. is the slope of the average product curve.

B. at any point is the slope of the total product curve at that point.

(ch. 9)Producing an additional unit whose marginal cost exceeds the average total cost incurred thus far has the effect of pulling the

B. average cost up.

(ch. 9)The vertical distance between the average total cost and the average variable cost curves at any level of output will always be A. variable cost. B. average fixed cost. C. fixed cost less variable cost. D. total cost less fixed cost.

B. average fixed cost.

(ch. 9)The slope of a ray from the origin to a point on the total cost curve is the A. average fixed cost of producing the corresponding level of output. B. average total cost of producing the corresponding level of output. C. marginal cost of producing the corresponding level of output. D. variable cost of producing the corresponding level of output.

B. average total cost of producing the corresponding level of output.

(chap 8)In a value added production function like the one used in the text, raw materials are A. counted as inputs in a production process. B. called intermediate goods. C. are counted in the final product of any production process as part of the value of output. D. called final goods.

B. called intermediate goods.

(Chap 11) In first-degree price discrimination, the monopolist A. knows the equilibrium price. B. can segment the market to the fullest extent. C. charges only two different prices. D. gets less of the consumer surplus than would be taken if 2nd degree price discrimination was practiced.

B. can segment the market to the fullest extent.

(chap 8)A fixed input is an input that A. can never be varied. B. cannot be varied in the short-run. C. is fixed only for some quantities of output. D. can never be moved from one location to the next.

B. cannot be varied in the short-run.

(chap 8)The law of diminishing returns to an input says that if other inputs are fixed A. output eventually will decrease with increases of the variable input. B. change in output will eventually decrease with increases in the variable input. C. revenue will eventually decrease with increases in the variable input. D. the variable input will eventually decrease with more output.

B. change in output will eventually decrease with increases in the variable input.

(Chap 10) In the long run, a tax placed on a perfectly competitive industry should A. increase the number of firms. B. decrease the number of firms. C. not affect the number of firms. D. One cannot tell

B. decrease the number of firms.

(chap 8)When Thomas Malthus argued that the prospects for human flourishing were gloomy and that starvation would eventually become the normal human condition, he was assuming that A. diseconomies of scale will become more commonplace. B. diminishing returns to production will become more apparent. C. epidemics will overpower the many technological advances that he expected. D. self-interest will become more intense and religion will cease to be an influential force in society.

B. diminishing returns to production will become more apparent.

(Chap 11) According to the text, the most important of the five factors which give rise to monopoly is A. exclusive control over important inputs. B. economies of scale. C. patents. D. government licenses. E. network economies.

B. economies of scale.

(Chap 10) At the output where MC = ATC = P, the firm A. should shutdown. B. has no economic profit. C. is profit maximizing. D. should raise output.

B. has no economic profit.

(ch. 9)The short-run output expansion path is __________ in the relevant area. A. a ray B. horizontal C. U-shaped D. upward sloping

B. horizontal

(ch. 9)Once we enter the region of diminishing returns, total variable cost A. increases at a decreasing rate. B. increases at an increasing rate. C. decreases at a decreasing rate. D. decreases at an increasing rate.

B. increases at an increasing rate.

(chap 8)If climate change starts creating earthquakes, storms, droughts and all manner of obstacles to production operations, the effects can be shown on effected production function graphs by A. eliminating the increasing returns portion of the short run production function. B. lowering the short run production function and reducing the numbers on each isoquant. C. changing the curves of the isoquants to straight lines. D. eliminating long run production functions because they are irrelevant.

B. lowering the short run production function and reducing the numbers on each isoquant.

(Chap 11) In the diagram below, the profit maximizing firm is A. making positive economic profit. B. making zero economic profit. C. making negative economic profit. D. one cannot tell.

B. making zero economic profit.

(chap 8)The general rule for allocating a productive resource efficiently across different production activities of the same product, like fishing boats in the text case example, is to choose the allocation for which the A. average product of the resource is the same in every activity. B. marginal product of the resource is the same in every activity. C. total product of the resource is the same in every activity. D. average product is equal to the marginal product in every activity.

B. marginal product of the resource is the same in every activity.

(Chap 11) Price discrimination is possible only if A. economies of scale exist. B. markets can be segregated. C. each person in the market has the same elasticity of demand. D. prices are kept secret so those paying the high price do not know that others paid less.

B. markets can be segregated.

(Chap 10)In general, economists assume that firms A. maximize accounting profit. B. maximize economic profit. C. maximize sales. D. maximize revenue.

B. maximize economic profit.

(Chap 10)In the graph below at P*, the firm is making __________ economic profits. A. positive B. negative C. zero D. an indeterminate level of

B. negative

(Chap 10) If the demand curve falls below the ATC curve but lies above AVC, then the firm should A. should shut down. B. operate in the short run but not the long run. C. set price = marginal cost. D. operate in the short run and the long run.

B. operate in the short run but not the long run.

(Chap 11) In long-run equilibrium for a single-price monopolist, A. the plant size is always the one at the bottom of the long-run ATC curve. B. output is at the level where short-run and long-run marginal costs are the same. C. marginal cost equals ATC. D. marginal revenue equals price.

B. output is at the level where short-run and long-run marginal costs are the same.

(Chap 10) Some people advocate price ceilings in certain markets because they seek to A. expand the total of consumer and producer surplus which the market generates. B. redistribute welfare from the producer to the consumer even if overall welfare is sacrificed. C. redistribute welfare from the consumer to the producer even if welfare is sacrificed. D. enhance both efficiency and distribution goals with the price ceiling.

B. redistribute welfare from the producer to the consumer even if overall welfare is sacrificed.

(Chap 11) Say a monopolist knew that at the current price for its product demand is inelastic. If marginal costs for this firm are zero, then in order to maximize profits this monopolist should A. increase output. B. reduce output. C. keep output at the same level. D. decrease its price.

B. reduce output.

(chap 8)For production functions with decreasing returns to scale, a proportional increase in output A. requires a less-than-proportional growth in all inputs. B. requires a more-than-proportional growth in all inputs. C. exhibits diminishing returns. D. requires proportional growth in all inputs.

B. requires a more-than-proportional growth in all inputs.

(Chap 10) In the graph below if the price persists at P*, the profit maximizing firm will A. shut down immediately. B. shut down in the long run. C. operate indefinitely. D. have a strategy that cannot be predicted without an ATC curve.

B. shut down in the long run.

(chap 8)Say you are the owner of a Pizza place. You know that when you produce 10 pizzas, the average product of each of your workers is 10, and the marginal product of your last worker is 15. From this information you know that A. the marginal product is increasing. B. the average product is increasing. C. the average product is decreasing. D. the marginal product is decreasing.

B. the average product is increasing.

(Chap 10) If firms are price takers this implies that A. in the short-run economic profits will be zero. B. the demand curve facing the firm is perfectly elastic. C. the total revenue curve is horizontal. D. the marginal revenue curve is upward sloping.

B. the demand curve facing the firm is perfectly elastic.

(ch. 9)Suppose labor and capital are both used to produce output. In the long run, if the wage rate rises while the rental rate on capital remains unchanged, A. the process will become more labor intensive. B. the process will become more capital intensive. C. market forces will come into play to bring the prices back to their earlier relationship. D. the marginal product of capital will rise and the marginal product of labor will fall.

B. the process will become more capital intensive.

(ch. 9)Marginal cost is defined as A. the rate at which average cost changes with output. B. the rate at which total variable cost changes with output. C. the rate at which fixed cost changes with output. D. total cost minus variable cost.

B. the rate at which total variable cost changes with output.

(ch. 9)Let the TC curve be given by the equation TC(Q) = 6Q. The FC curve can be expressed as A. 6. B. 6Q. C. 0. D. It cannot be determined with the information given

C. 0.

(Chap 10)Suppose that the supply curve is given by P = Q. What is the elasticity of supply? A. 10 B. 1/10 C. 1 D. Cannot be determined from these information

C. 1

(Chap 11) If the marginal costs are constant and zero for a single price monopolist facing the demand curve P = 10 - Q, what will profits be if fixed costs are 12? A. 10 B. 12 C. 13 D. 38

C. 13

(ch. 9)Let the TC curve be given by the equation TC(Q) = 20 + 5Q. The variable cost curve can be expressed as A. 20 + 5Q. B. 20. C. 5Q. D. 5.

C. 5Q.

(Chap 10) In the diagram below, profit is maximized at point A. A. B. B. C. C. D. D.

C. C.

(chap 8)What will happen to a typical isoquant if robots become increasingly good at doing manual and mental labor? A. Isoquants will become much steeper. B. Isoquants will not change but movement will occur upward on the curve. C. Isoquants will become much flatter. D. Isoquants will become a negatively sloped straight line.

C. Isoquants will become much flatter.

(Chap 10)Joe is self-employed in a store that has a rental value of $500 a month which he pays, but he can vacate the building without giving notice. His other expenses are $100 a month for maintenance. He makes $25,000 a year on net sales (total revenue minus the wholesale cost of the product). If he quit his job and worked the same number of hours elsewhere at a job he liked equally well, he estimates that he could make $20,000 a year. No one else can be hired to work in the store. Suppose that Joe had a long term lease which requires him to pay the rent even if he doesn't operate the store. What should Joe do? A. Quit immediately. B. Keep the job permanently. C. Keep the job until the lease expires. D. It is impossible to say with the information given in the problem.

C. Keep the job until the lease expires.

(Chap 10) Which statement is true of the market supply curve? A. It is the vertical summation of all the individual supply curves. B. It is the horizontal summation of the upward sloping portion of the AVC function of all firms in the industry. C. One must know the marginal cost information of firms in order to construct a supply function. D. In perfect competition the slope of the curve is horizontal.

C. One must know the marginal cost information of firms in order to construct a supply function.

(Chap 11) A firm with a demand curve P = 10 - Q is a perfect price discriminating monopolist with zero marginal costs and fixed costs of 12. Consider the following two statements comparing the price discriminating case with a single price monopolist. 1) In this case consumers are better off as a group because more of the product is produced. 2) Producers are better off because they have higher profits. Which of the following comments about these statements is true? A. Both statements are true. B. Only the first statement is true. C. Only the second statement is true. D. Both statements are false.

C. Only the second statement is true.

(Chap 9)In a graph of short run cost curves, which starts rising first? A. The average variable cost curve B. The average total cost curve C. The marginal cost curve D. The average fixed cost curve

C. The marginal cost curve

(chap 8)The nineteenth-century British economist Thomas Malthus argued that the law of diminishing returns implied that A. capital would increase relative to labor. B. technological change would grow at an increasing pace. C. eventual misery would befall the human race. D. raw materials would eventually run out.

C. eventual misery would befall the human race.

(ch. 9)The vertical distance between the total variable cost and total cost curves A. is everywhere equal to zero. B. is everywhere equal to marginal cost. C. is everywhere equal to total fixed cost. D. increases at a decreasing rate.

C. is everywhere equal to total fixed cost.

(ch. 9)The total fixed cost curve A. varies with the level of output. B. is negatively sloped. C. is simply a horizontal line. D. is simply a vertical line.

C. is simply a horizontal line.

(ch. 9)For a given firm, whenever the ratio of marginal product to input price differs across inputs, A. the market will adjust the price of the higher priced input. B. it will always be possible to make a cost-saving substitution in favor of the input with the lower MP/P ratio (except in the case of corner solutions). C. it will always be possible to make a cost-saving substitution in favor of the input with the higher MP/P ratio. D. the market will adjust the price of the lower priced input.

C. it will always be possible to make a cost-saving substitution in favor of the input with the higher MP/P ratio.

(Chap 10) In the long run, the price in this market will be A. P1. B. higher than P1. C. lower than P1. D. We need more information in order to answer

C. lower than P1.

(ch. 9)In order to divide a given production quota between two production processes in such a way as to produce the quota at the lowest possible cost, one should produce the output where A. average costs are equal for both processes. B. average cost is equal to marginal cost for both processes. C. marginal costs are equal in both processes. D. marginal costs are at least equal to ATC in each process.

C. marginal costs are equal in both processes.

(chap 8)If a chef and her equipment transform $50 worth of raw foodstuff into a meal with a total value of $150, the resulting output would be A. measured as the $150 total value. B. referred to as an intermediate product. C. measured as the $100 of value added. D. measured as $200 of value added.

C. measured as the $100 of value added.

(ch. 9)Markets characterized by declining long-run average costs are often referred to as A. perfect competition. B. diseconomies of scale. C. natural monopolies. D. nonprofit organizations.

C. natural monopolies.

(Chap 10) In the long run, the typical firm in this market will produce a quantity equal to A. q1. B. q2. C. q3. D. Q1.

C. q3.

(chap 8)Diminishing returns begin to occur when the A. slope of the ray from the origin reaches a maximum. B. total product curve reaches a maximum. C. slope of the total product curve reaches a maximum. D. marginal product curve intersects the average product curve.

C. slope of the total product curve reaches a maximum.

(chap 8)When the marginal product curve lies above the average product curve A. the average product curve must be falling. B. the total product curve must be falling. C. the average product curve must be rising. D. the marginal product curve must be rising.

C. the average product curve must be rising.

(chap 8)The marginal product of a variable input is A. zero at the point of diminishing returns. B. the change in the average product that occurs when the variable input is increased one unit. C. the change in the total product that occurs in response to a unit change in the variable input. D. the second derivative of the total product function.

C. the change in the total product that occurs in response to a unit change in the variable input.

(ch. 9)When costs are at a minimum, A. the ratio of the MPL/MPK < Price L/Price K. B. MPL = MPK. C. the extra output we get from the last dollar spent on an input must be the same for all inputs. D. Price L = Price K.

C. the extra output we get from the last dollar spent on an input must be the same for all inputs.

(Chap 11) A single price profit maximizing monopolist is inefficient because A. it produces too much output. B. it perfectly price discriminates when it can. C. the sum of consumer and producer surplus is less than it could be. D. it produces where price equals marginal cost rather than where marginal cost equals marginal revenue.

C. the sum of consumer and producer surplus is less than it could be.

(Chap 10) At market equilibrium, the total benefit that results from all the transactions is A. the consumer surplus minus the producer surplus. B. the producer surplus minus the consumer surplus. C. the sum of the producer surplus and the consumer surplus. D. the entire area under the demand curve up to the quantity exchanged.

C. the sum of the producer surplus and the consumer surplus.

(ch. 9)Geometrically, marginal cost at any level of output may be interpreted as the slope of A. a ray to the total cost curve at that level of output. B. the average variable cost curve at that level of output. C. the total cost curve at that level of output. D. the isoquant at that level of output.

C. the total cost curve at that level of output.

(Chap 11) If a monopolist had no costs, its best possible price would be where demand is A. infinitely elastic. B. relatively (but not perfectly) elastic. C. unit elastic. D. relatively (but not completely) inelastic.

C. unit elastic.

(chap 8)Returns to scale refers to A. what happens to output when at least one input is fixed and one is varied. B. what happens to output when all inputs are held fixed. C. what happens to output when all inputs are varied in some proportion. D. the law of diminishing returns.

C. what happens to output when all inputs are varied in some proportion.

(Chap 11) Under rate of return regulation, firms earn A. positive economic profits. B. negative economic profits. C. zero economic profits. D. zero accounting profits.

C. zero economic profits.

(ch. 9)The long-run total cost of zero output is equal to A. variable cost. B. fixed cost. C. zero. D. the marginal revenue product of labor.

C. zero.

(ch. 9)The variable cost of zero units of output is equal to A. total cost. B. total fixed cost. C. zero. D. one.

C. zero.

(Chap 9)If some inputs of production do not vary with the level of output we call them fixed inputs which when multiplied by their price become fixed cost. Which of the following items typically fit this category? A. Property taxes B. Insurance payments C. Interest on loans D. All of these are fixed costs

D. All of these are fixed costs

(Chap 11) Which of the following is not true for a profit maximizing single-price monopolist in the long run? A. It will make profit or break even. B. Price is greater than marginal revenue. C. Marginal revenue equals marginal cost. D. Demand is inelastic.

D. Demand is inelastic.

(Chap 10)If free entry and exit were not possible, A. in the long run firms would lose money. B. in the long run firms would make money. C. in the long run firms would break even. D. It is impossible to tell what would happen without more cost and revenue information.

D. It is impossible to tell what would happen without more cost and revenue information.

(Chap 11) In the long run, equilibrium for a monopolist is when A. the short-run average cost curve is at its lowest point. B. the long-run average cost curve is at its lowest point. C. the short-run and long-run average cost curves are at their lowest points. D. None of these is necessarily true.

D. None of these is necessarily true.

(Chap 11) Which of the following is not a source of monopoly power? A. Exclusive control over inputs B. Economies of scale C. Patents D. Rapid low cost technological change in the industry

D. Rapid low cost technological change in the industry

(Chap 9)Which statement is false? A. Short-run cost assumes a fixed capital size, while long-run cost includes all possible capital levels in determining cost. B. Short-run total cost can never be less than long-run total cost at any given output level. C. Long-run marginal cost never intersects long-run average cost as long as increasing returns to scale are present. D. Short run ATC and long run ATC are never equal except at the minimum point on the long run ATC curve.

D. Short run ATC and long run ATC are never equal except at the minimum point on the long run ATC curve.

(Chap 11) Which of the following explains why theater prices for popcorn are three or four times higher than the popcorn price in the grocery store? A. The grocery store sells a much higher volume and gets its profits that way. B. The cost of popping the popcorn is high. C. Grocery stores are satisfied with normal profit while theaters seek economic profit. D. The demand curve for popcorn in a theater is more inelastic than the demand for popcorn at the grocery store.

D. The demand curve for popcorn in a theater is more inelastic than the demand for popcorn at the grocery store.

(ch. 9)When marginal cost is less than average total cost, ______ as output increases. A. average total cost must be increasing B. average variable cost must be decreasing C. average fixed cost must be increasing D. average total cost must be decreasing

D. average total cost must be decreasing

(chap 8)For any constant returns production function, the isoquants for Q = 1, Q = 2, Q = 3, etc. will A. all be inversely proportional to the inputs. B. exhibit diminishing returns in the long run. C. be straight lines. D. be equally spaced, in that the distance between Q = 1 and Q = 2 is the same as Q = 2 and Q = 3, etc.

D. be equally spaced, in that the distance between Q = 1 and Q = 2 is the same as Q = 2 and Q = 3, etc.

(Chap 9)Average total cost is $100 for a given output, total fixed cost is 120 and average variable cost is 70. What is the quantity being produced?

If AVC = 70 and ATC = 100 then AFC must = 30. Since total fixed cost = 120 it follows that 120/30 = 4, so the quantity is 4.

(Chap 10) If a firm is producing where its LMC = price and the LMC is equal to LAC, then it would do better in the long run by A. increasing output with its existing plant until LMC equals price. B. increasing plant size until LMC and SAC are identical and equal to price. C. decreasing plant size until LAC, SAC and price are equal. D. changing nothing because it is already at the long run profit maximizing point.

D. changing nothing because it is already at the long run profit maximizing point.

(ch. 9)The vertical distance between the average variable cost and average total cost curves A. is everywhere equal to total fixed costs. B. is everywhere equal to marginal cost. C. increases at a decreasing rate. D. decreases as quantity increases.

D. decreases as quantity increases.

(chap 8)A production function for which proportional changes in all inputs leads to a more-thanproportional change in output is said to exhibit A. diminishing returns. B. decreasing returns to scale. C. constant returns to scale. D. increasing returns to scale.

D. increasing returns to scale.

(chap 8)If equal amounts of a variable input are sequentially added to the fixed input in a typical production function, A. the increments to output will decrease first and then increase. B. the additions to output will be constant. C. increments to output will increase indefinitely. D. increments to output will first increase at an increasing rate and then at a decreasing rate.

D. increments to output will first increase at an increasing rate and then at a decreasing rate.

(chap 8)The average product of a variable input A. decreases at an increasing rate. B. constantly rises over the relevant range of production. C. is the change in the total product that occurs when the variable input increases one unit. D. is defined as the total product divided by the quantity of the variable input.

D. is defined as the total product divided by the quantity of the variable input.

(ch. 9)The total cost curve A. is a horizontal line. B. increases at a decreasing rate due to diminishing returns. C. is parallel to the total fixed cost curve. D. is parallel to and above the total variable cost curve.

D. is parallel to and above the total variable cost curve.

(Chap 11) For the output maximizing monopolist A. average total cost must be falling. B. marginal revenue equals marginal cost. C. long-run marginal cost equals demand. D. price equals average total cost.

D. price equals average total cost.

(Chap 10) A profit maximizing monopolist faces the following information: P = $10, MR = $5, ATC = $6, MC = $5. The firm should A. shut down. B. decrease output. C. increase output. D. stay at its current level of output.

D. stay at its current level of output.

(ch. 9) Given input prices and the usual strategy of a profit-maximizing firm, efficient production occurs at A. the highest isoquant Q for a given isocost C. B. the lowest isoquant Q for a given isocost C. C. the highest isocost C for a given isoquant Q. D. the lowest isocost C for a given isoquant Q.

D. the lowest isocost C for a given isoquant Q.

(Chap 10) You have a small business that makes $50,000 accounting and economic profit for you. As a disabled person, you must work at home and you did not have other opportunities until your neighbor offers you a job you like equally well for $50,000 and you can do it at home. This means A. your economic profit has gone down and your accounting profit has gone up. B. both your accounting and economic profit have gone down. C. both your accounting and economic profit have gone up. D. your economic profit has gone down and your accounting profit has stayed the same.

D. your economic profit has gone down and your accounting profit has stayed the same.

(Chap 10) essay Put yourself in the place of a blacksmith during the early years of the 20th century. Assume you and all the other blacksmiths in the town were doing as well as any alternative options that were available. Then cars began to arrive and fewer horses needed horseshoes. Describe, using terms from this chapter, the sequence of events that ultimately led to you closing your shop and hunting another job.

First, your demand shifted a bit left as a few customers bought cars. Your profit went down but, because the fixed costs of your building and equipment were paid, you still had more income than the wages of the alternative job you felt you could get. However, as cars become popular, demand kept shifting left and you had to keep lowering your price as all your competitors did to try to attract more customers. Before long the cost of iron, nails and coal for heat that were inputs into the business was greater than your revenue. With the average variable costs above the price it became clear that you were worse off operating than if you shut down. At this point you shut down and seek other work.

(Chap 9)If the total cost function is TC = Q3 - 6Q2 + 14Q + 75, would you expect the bottom of the ATC curve to be greater than, less than, or equal to 3?

Greater than 3. MC intersects AVC at its minimum so the answer can be obtained by taking the first derivative of the AVC which is Q2 - 6Q + 14 and setting it equal to zero. The derivative is 2Q - 6 so 2Q - 6 = 0 and Q = 3. Therefore, the marginal cost curve is below the ATC at an output of 3 so the quantity will increase beyond 3 as the marginal cost approaches the ATC curve where that curve is minimized. Alternatively, the answer could be found by dividing the TC equation by Q to get ATC and then setting the first derivative of the result equal to zero and solving for Q.

(Chap 9)If the total cost function is TC = Q3 - 6Q2 + 14Q + 75, at what output is the AVC = MC?

MC intersects AVC at its minimum so the answer can be obtained by taking the first derivative of the AVC which is Q2 - 6Q + 14 and setting it equal to zero. The derivative is 2Q - 6 so 2Q - 6 = 0 and Q = 3.

(chap 8)EssayOne of the main differences between production processes among different parts of the world has to do with the quality of capital. Many development economists point out the fact that high-income countries usually have access to more and better capital than less-developed counties. What would be the effect of this difference in terms of isoquants used by high-income countries versus the isoquants used by low-income countries? Use an isoquant map in order to illustrate your answer.

In high income cases a small amount of capital substitutes for many workers and in the other case it takes many units of capital to do what a few workers can do. Clearly the first case will lead to higher productivity.

(Chap 11) Suppose you own a firm that produces widgets and is a monopoly. The market demand is given by the equation P = 50 - 2Q, where P is the price of gadgets and Q is the quantity of gadgets sold per week. The marginal cost for the firm is 6Q. What is the single price monopoly output and price?

MR = 50 - 4Q; MC = 6Q so 50 - 4Q = 6Q and Q = 5 so Price = 40

(chap 8) essay Sketch graph a standard short-run production function, and identify on it the points where the average product peaks, the marginal product peaks, the marginal product reaches zero, and the average and marginal product intersect.

Make sure the average product peaks at the output where the ray from the origin is tangent to the total product curve and where the marginal product passes through it. The marginal product must peak at the output where the inflection point is on the total product curve, and the marginal product reaches zero when the total product peaks

(Chap 9)During the last 30 years computers have changed most production processes. Use an isocostisoquant diagram to show the effect the spread of computers have had on labor during the last 30 years.

Many answers are possible. But here is one possible one: Since the price of computers has gone down, the isocost becomes steeper with respect to labor. Even if we assume productivity of labor and capital (shapes) of isoquants remained the same, companies would be replaced some workers for computers. Nevertheless, isoquants probably did not remain the same. Some students could say that the productivity of workers increased due with the use of computers; hence the isoquant would become steeper. Other students might argue that capital is more productive, and hence the isoquants would become flatter.

(Chap 10) essay A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC = 200 + .3Q. The demand curve faced by the industry is given as P = 400 - .1Q. What is the equilibrium price and quantity produced by the industry as a whole?

Price is 350 and industry quantity is 500. The MC curves must be summed into a market supply curve which is MC = 200 - .3Q. This is equated to the demand curve to get the answer.

(Chap 10) A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC = 200 + .3Q. The demand curve faced by the industry is given as P = 400 - .1Q. What is the producer and consumer surplus in the entire market?

Producer surplus will be 37,500 [(150 × 500)/2] and consumer surplus will be 12,500. [(50 × 500)/2].

(Chap 11) Sketch graph a natural monopoly like a city transportation subway with the typical ATC, MC, and demand and MR functions A. Label the profit maximizing monopoly price with a P1. B. Label the typical public utility commission regulated price which requires no subsidy as P2. C. Label the socially efficient price as P3. D. Shade in the area of the subsidy required in one of the cases above. E. Explain why a subsidy is often used for public transportation but not for municipal water supply.

Public transportation has many positive externalities because when you ride the train, I have less traffic to deal with on the highways. Because I otherwise would not pay for this benefit, a tax assessed to me and given to the transportation company will help bring a more efficient allocation of transportation resources. If you use more water, I am not benefited in any meaningful way. See graph below.

(Chap 11) A firm facing the demand curve P = 10 - Q has zero marginal costs, fixed costs of 12, and is a single price monopolist. What quantity would it produce and what would its profit (loss) situation then be?

Quantity and Price are 5 so TR = 25 minus 12 costs = 13 profit

(Chap 11) If the firm facing the demand curve P = 10 - Q has zero marginal costs and is a perfect price discriminator instead of a single price monopolist, and fixed costs are 12. What is the profit (loss) of the firm?

TR = 50 and TC = 12 so profit is 38

(Chap 9)Why does the AVC reach its minimum before the ATC reaches its minimum?

The AVC is being pulled down by marginal costs that are below AVC. The ATC is being pulled down by the same factor plus the spreading out of the fixed costs over more output. The second factor keeps ATC falling after AVC begins to rise until ATC = MC.

(Chap 10) essay A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC = 200 + .3Q. The demand curve faced by the industry is given as P = 400 - .1Q. What is the price charged by each firm and what quantity will each firm produce?

The firm must charge 350 and will sell 5.

(Chap 11) essay Many college bookstores give faculty a discount that students do not receive. Show with a sketch graph why this practice is most likely a profit maximizing strategy instead of a college perk given to the faculty at college expense.

The graph above shows that the student demand is more inelastic at any price level than the faculty demand. (At any given price the location on the demand curve is proportionately further down the demand curve for the students.) For this reason they can be charged a higher price. By observing where the MC of producing is equal to the marginal revenue received from both markets, the bookstore manager will discover that overall profits are maximized when he charges Ps to the students and Pf to the faculty.

(Chap 10) essay Over the last two decades the combination of the internet, high definition TV, and the surround sound has revolutionized watching a movie at home. At the same time, advances in technology in the movie theater have raised the standard that the home entertainment alternative must achieve. Think about the effects of these technological changes on movie watching and identify another market for related goods or service where one will expand and the other will contract. Describe in detail the sequence of events as the two related items you've identified respond to the new technologies.

The markets your students choose likely are different than the markets discussed here. But the effects sketched here should be similar in your students' answers. An example of a market that will expand is the market for electric cars. As more people own electric cars and charging stations proliferate, the demand for those cars increases. The firms producing them earn an economic profit in the short run. But as time passes, more firms enter this market. The price of an electric car falls and in the long run, the firms producing those cars earn only a normal profit. An example of a market that might contract is the market for live attendance at sporting events because the quality of watching the events at home increases. The demand for attending a live sporting event will likely decrease, especially second tier live sporting events. The price of a ticket to live sporting events falls and the firms producing live sporting events incur economic losses. As time passes, some of the firms exit the market and, in the long run, the remaining firms earn a normal profit. Other examples might be solar and electric energy, online and campus college education, and organic and non-organic food.

(chap 8) essay Several years ago while teaching in Russia, I was using a production function like the ones used in this text. Output is a function of labor, capital and technology. One professor asked me how I could talk about production without including all the inputs that go into the process. Write a response to this professor from what you know of a production function. You should focus on the concept of value added production.

While intermediate goods do enter production processes, they are not part of the production generated by the process under consideration. A car assembly plant performs the assembly function in building cars. Its value added is far from the total value of the car. Therefore, the total product in production functions is only that amount generated by the labor and capital expended in that particular process.