Study Set for Econ exam 3

Which of the following identifies the optimal usage of inputs by a profit-maximizing firm? A. Marginal cost of labor = marginal cost of capital B. Marginal product of labor/marginal product of capital = price of capital/price of labor C. Marginal product of labor/price of labor = marginal product of capital/price of capital D. Marginal revenue product of labor = marginal revenue product of capital E. Marginal product of labor = marginal product of capital = 0

C. Marginal product of labor/price of labor = marginal product of capital/price of capital

Which of the following is true of a firm's fixed costs? A. Fixed costs are reduced to zero if the firm produces no output B. Fixed costs are the same as the firm's total costs C. Fixed costs are incurred regardless of the firm's level of output D. A firm should shut down if it cannot cover its fixed costs E. Accounting profit equals economic profit when fixed costs fall to zero

C. Fixed costs are incurred regardless of the firm's level of output

A firm produces 100 units of output at an average variable cost of $5 and incurs a total fixed cost of $700. Which of the following is true? A. The firm's marginal cost is constant and equal to $5 B. The firm's total variable cost is $1,200 C. The firm'a total cost is $500 D. The firm's average fixed cost is $5 E. The firm's average total cost is $12

E. The firm's average total cost is $12 ATC=AFC+AVC ATC+ 700/100 + 5 7+5=12

Compared to a perfectly competitive industry, a monopolist will generally produce: A. roughly the same level of output but at a higher price B. a greater level of output a lower price C. a greater level of output at a higher price D. a smaller level of output a lower price E. a smaller level of output at a higher price

E. a smaller level of output at a higher price

If the price of a product consistently exceeds its average cost, once can definitely conclude that the firm: A. is producing at the minimum efficient scale B. is maximizing its long-run profit C. is earning a normal rate of return D. is producing at its most efficient level of output E. is earning a positive economic profit

E. is earning a positive economic profit

Refer to Figure 22.2 for a perfectly competitive firm. The profit-maximizing quantity of output is A. E B. D C. B D. C E. A

B. D

Refer to Figure 6-1. Wha is the quantity that the firm will produce if it is operating at minimum efficient scale? A. E B. B C. C D. D E. A

C. C

Demand for a good is given by Qd= 100-P and supply by Qs=.5P-20, where P is the market price of the good. In equilibrium, price and output under perfect competition will be: A. $100 and 30 units respectively B. $60 and 10 units respectively C. $70 and 30 units respectively D. $120 and 35 units respectively E. $80 and 20 units respectively

E. $80 and 20 units respectively

Firm X sells output at a price of $8 per unit and pays labor wage of $20 per hour. The marginal product of labor is given by MPl=12-.1L. To maximize profit, the firm should utilize ___ hours of labor. A. 90 B. 75 C. 80 D. 85 E. 95

E. 95

Refer to Figure 22.3 for a perfectly competitive firm. If the market price is $15, A. In the Long Run Firms will neither enter or exit the market B. The Economic Losses will drive the price down C. The Economic Profits will drive the price up D. In Long Run Firms will exit the market E. In the Long Run Firms will enter the market

A. In the Long Run Firms will neither enter or exit the market

Which of the following is true of a firm that faces increasing returns to scale? A. A given increase in the quantity of all inputs will increase output by a greater proportion B. As the quantity of one input is increased, the marginal cost of production will decline C. An increase in the quantity of one input will increase output by a greater proportion D. As the quantity of all inputs are increased, the average cost of production will increase E. As the quantity of one input is increase, its marginal product will increase at an increasing rate

A. A given increase in the quantity of all inputs will increase output by a greater proportion

A monopolist maximizes profit by producing: A. at the output level where marginal revenue equals marginal cost B. at the level where the deadweight loss is minimized C. at the point where the cost of producing the last unit of output equals price D. at the level where average cost is minimized E. on the inelastic portion of the demand curve

A. at the output level where marginal revenue equals marginal cost

Refer to Figure 8-1. If the firm operates as a monopoly in an unregulated market, its profit-maximizing price and output would be _____, respectively A. B and R B. C and Q C. A and T D. D and P E. A and Q

B. C and Q

Which of the following production functions displays decreasing returns to scale? A. Q=bLK B. Q=cL^2K^.5 C. Q=cL^2K^5 D. Q=aL+bK E. Q=aL+bK^2

B. Q=cL^2K^.5

In the long run, firms in a perfectly competitive industry are most likely to: A. earn negative economic profits and exit the market B. earn zero economic profits and produce at minimum cost C. continue to earn positive economic profit because of barriers to entry D. suppress innovative products to earn a positive economic profit E. have a positively sloped average revenue curve

B. earn zero economic profits and produce at minimum cost

If the sum of the exponents of a Cobb-Douglas production function is equal to 1.2, the production function exhibits A. increasing average costs B. increasing returns to scale C. constant returns to scale D. declining productivity E. diminishing marginal returns

B. increasing returns to scale

If short-run average total cost is increasing then: A. marginal cost must be decreasing B. marginal cost must be greater than short-run average cost C. average variable cost must be decreasing D. the production function displays decreasing returns to scale E. average fixed cost must be increasing

B. marginal cost must be greater than short-run average cost

In order to maximize profits, a perfectly competitive form will continue producing until: A. its total sales revenue is maximized B. the marginal cost equals the market price C. the average cost is minimized D. the profit per-unit is at its highest possible point E. it utilizes its full production capacity

B. the marginal cost equals the market price

Refer to Figure 6-1. The production function of the firm displays constant returns to scale when output is increased from _______. A. D to E B. A to E C. C to D D. A to B E. B to D

C. C to D

The money that a firm has already spent on research and development for a project should be categorized as ____ when the firm is deciding whether to make an additional investment in the project? A. a variable cost B. an overhead cost C. a sunk cost D. a marginal cost E. an implicit cost

C. a sunk cost

A firm will continue to operate in the long run only if: A. average cost exceeds price B. the average variable cost exceeds price C. it earns a nonnegative economic profit D. it earns a positive rate of return E. it makes a positive accounting profit

C. it earns a nonnegative economic profit

The demand curve faced by an individual firm in a perfectly competitive market, implies that the firm: A. can influence the market price B. can raise the market price of the good by lowering its sales C. takes the market price as given D. can increase its profits by raising the price of the good it sells E. is earning a positive economic profit

C. takes the market price as given

Dana, who is a trained yoga instructor, spends 4 hours on Monday baking and packing 10 boxes of cookies. She sells the cookies for $10 a box. Given that she can also teach yoga for $80 an hours, what is her implicit cost of baking cookies? A. $220 B. $100 C. $800 D. $320 E. $420

D. $320 4X$80=$320

A monopolist produces and sells 400 units at a price of $40 per unit. The monopolist's marginal cost is equal to $15 and average cost is equal to $23. The monopolist's profit is: A. None of these are correct B. $8,000 C. $10,000 D. $6,800 E. $16,000

D. $6,800

Megan used to work at the local pizzeria for $15,000 per year but quit to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8% interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her annual profit for her. A. Dad says she lost $11,000 and Mom says she lost $26,00 B. Dad says her profit is $31,000 C. None of the above D. Dad says her profit is $19,000 and Mom says her profit is $2,400 E. Dad says her profit is $9,000 and Mom says she lost $6,000

D. Dad says her profit is $19,000 and Mom says her profit is $2,400

Refer to Figure 22.3 for a perfectly competitive firm. If the market price is $23, A. In the short run the firm will produce 31 units and have an economic profit, In the the long run firms will enter the market and the market supply curve will shift left B. In the short run the firm will produce 39 units, have an economic profit and produce at least cost production. In the long run firms will enter the market and the market supply curve will shift right C. In the short run the firm will produce 39 units and have an economic profit. In the long run firms will enter the market and the market supply curve will shift left. D. In the short run the firm will produce 39 units and have an economic profit. In the long run firms will enter the market and the market supply curve will shift right E. In the short run the firm will produce 31 units and have an economic profit. In the long run firms will enter the market and the market supply curve will shift right

D. In the short run the firm will produce 39 units and have an economic profit. In the long run firms will enter the market and the market supply curve will shift right

When average total cost is at its minimum point: A. marginal cost is constant B. marginal cost is also at its minimum point C. marginal cost is equal to zero D. average total cost is equal to marginal cost E. the firm is maximizing profit

D. average total cost is equal to marginal cost

In a perfectly competitive market, an individual firm faces a demand curve that: A. is downward sloping B. is upward sloping C. is perfectly inelastic D. is horizontal at the equilibrium price E. lies above the marginal revenue curve

D. is horizontal at the equilibrium price

Refer to Figure 6-1. The production function of the firm displays increasing returns to scale at all levels of output between _____. A. C to D B. B to E C. D to E D. A to E E. A to C

E. A to C

In the short run, if the marginal product of labor is decreasing, then: A. average total cost must be decreasing, the marginal revenue product of labor must be increasing B. average variable cost must be decreasing C. the marginal revenue of the firm must be decreasing D. average total cost must be increasing E. marginal cost must be increasing

E. marginal cost must be increasing