unit 3 ap classroom micro econ questions

Assume a decreasing-cost perfectly competitive industry. Which of the following statements is true? A.) Firms will earn economic profits in long-run equilibrium. B.) The short-run market supply curve is upward sloping; the long-run supply curve is horizontal or perfectly elastic. C.) As industry output expands, there are fewer firms producing in the long run. D.) As industry output contracts, each firm's long-run average total cost curve shifts upward. E.) input prices rise as the industry produces more output.

As industry output contracts, each firm's long-run average total cost curve shifts upward.

Assume an increasing-cost perfectly competitive industry. Which of the following statements is true? A.) The short-run market supply curve will be upward sloping, but the long-run market supply curve will be horizontal. B.) Firms must be producing where their long-run average cost curve is upward sloping, exhibiting diseconomies of scale. C.) In the long run, firms will actually sustain economic losses. D.) Firms no longer produce at the minimum of long-run average total cost in long-run equilibrium. E.) As the industry expands its output, at least one input price increases, increasing the minimum of long-run average total cost.

As the industry expands its output, at least one input price increases, increasing the minimum of long-run average total cost.

Assume a firm doubles its usage of each input, resulting in a doubling of the firm's output. Which of the following describes this result?

Constant returns to scale

Assume the marginal product of labor first rises, reaches a maximum, and then falls. If the average product of labor is falling, which of the following is true? A.) The marginal product of labor is greater than the average product of labor. B.) The level of output produced must be at its maximum. C.) The marginal product of labor must be falling. D.) The marginal product of labor must be negative. E.) The average product of labor has not yet reached its maximum.

The marginal product of labor must be falling.

Which of the following statements about short-run costs is true? A.) Average fixed cost plus variable cost equals total cost. B.) Average total cost plus average fixed cost equals average variable cost. C.) Total fixed cost increases in constant increments as output produced increases. D.) Total fixed cost plus total variable cost equals total cost. E.) At low output levels, as output increases, total fixed cost and total variable cost decrease, reducing average total cost.

Total fixed cost plus total variable cost equals total cost.

Which of the following explains the difference between short-run and long-run costs?

All costs are variable in the long run but not in the short run.

When a competitive firm maximizes short-run economic profits, it produces at the output level where

marginal revenue equals marginal cost

Ryan quit a job with a daily salary and opened a business. On a daily basis, the total revenue of the business is $200, and the explicit costs of the business are $120. If Ryan has zero economic profits, what must be the value of Ryan's implicit costs?

$80

At its current level of output, a firm's total revenue is greater than its total variable cost but less than its total cost. If the firm is producing at the point where marginal revenue is equal to marginal cost, what should the firm do to maximize profit in the short run?

Continue to produce at its current level of output to minimize losses.

Which of the following statements regarding accounting profits, opportunity costs, and economic profits is true? A.) With positive opportunity costs, a firm can never earn economic profits. B.) Accounting profits are equal to economic profits minus opportunity costs. C.) If accounting profits are less than opportunity costs, there will be economic losses. D.) Economic profits must always be greater than accounting profits. E.) When economic profits are positive, accounting profits may be positive or negative.

If accounting profits are less than opportunity costs, there will be economic losses.

Assume that the short-run marginal cost curve initially falls, and it then rises as quantity of output increases. Which of the following must be true? A.) The marginal product of labor is always falling. B.) At every output level, the short-run marginal cost curve is always above the average variable cost curve. C.) As output increases, the unit price of labor (the wage rate) is first falling and then rising. D.) Initially the marginal product of labor increases but eventually marginal product of labor decreases. E.) The average variable cost curve must always be rising.

Initially the marginal product of labor increases but eventually marginal product of labor decreases.

Assume Nadia voluntarily leaves a job with a salary of $100 per day to open and run a restaurant instead. After deducting all explicit costs from the restaurant revenues, Nadia has a gain of $120. Assuming there are no additional implicit costs, which of the following statements is true?

Nadia has an economic profit of $20.

In the absence of barriers to entry, a typical firm is currently in long-run equilibrium. Assume there is an increase in the market demand for the good that the firm is producing. Which of the following will happen in the long run?

New firms will enter the market.

Assume a competitive firm is producing where price (P) and marginal revenue (MR) are greater than marginal cost (MC) and average variable cost (AVC). Which of the following is true regarding the firm's short-run output level?

The firm is producing too little and should increase its output level until P=MR=AVC

In the short run, which of the following must be true for a perfectly competitive firm that is maximizing profits?

The firm will produce where MR = MC as long as P is greater than average variable cost.

Which of the following statements relating to a profit-maximizing perfectly competitive firm is true? A.) The firm is facing downward-sloping demand and marginal revenue curves. B.) The firm will raise its price to increase revenue. C.) The firm's price is above its marginal revenue at every output level. D.) The firm's price is given by the market and is equal to marginal revenue. E.) The firm continues to produce as long as marginal revenue is greater than zero.

The firm's price is given by the market and is equal to marginal revenue.

In the short run, assume diminishing marginal product of labor sets in with the hiring of the second worker. Which of the following will remain constant as a firm produces more output? A.) Average product of labor B.) Total cost C.) Total fixed cost D.) Total variable cost E.) Marginal cost

total fixed cost