Unit 3 Mastery Quiz

Which of the following are characteristics of a perfectly competitive industry? I. New firms can enter the industry easily. II. There is no product differentiation. III. The industry's demand curve is perfectly elastic. IV. The supply curve of an individual firm in the industry is perfectly elastic. A) I and II only B) I and III only C) II and IV only D) I, II, and IV only E) I, III, and IV only

A) I and II only

Which of the following is true for a firm that uses labor as a variable input and capital as a fixed input in the short run? A) If the marginal product of labor is negative, the average product of labor must also be negative. B) If the marginal product of labor is rising, the average product of labor must be greater than the marginal product of labor. C) If the average product of labor is rising, the marginal product of labor must be rising. D) If the average product of labor is falling, the marginal product of labor must be less than the average product of labor. E) The average product of labor can never be equal to the marginal product of labor.

A) If the marginal product of labor is negative, the average product of labor must also be negative.

Which of the following MUST be true of the long run? A) It is at least one year in duration. B) All factors of production are variable. C) At least one factor of production is fixed. D) Marginal costs are constant. E) Average total costs are constant.

B) All factors of production are variable.

Which of the following is a result of increasing returns to scale? A) Upward-sloping short-run marginal cost curve B) Downward-sloping marginal physical product of labor curve C) Downward-sloping long-run average total cost curve D) Diseconomies of scale E) Diminishing returns

B) Downward-sloping marginal physical product of labor curve

The Wheeler Wheat Farm has a long-term lease on 5000 acres of land in Saskatchewan. The annual lease payment is $250 000. Prior to planting in the spring of 2019, the farm's economist predicted that the farm would have $135 000 left after paying all of its costs except the annual lease payment. In this case, what should the Wheeler Wheat Farm do? A) it should continue to operate because total revenue exceeds total cost. B) It should continue to operate even though it predicts an accounting loss of $115 000. C) It should shut down and experience an accounting loss of $135 000. D) It should exit the market and experience an accounting loss of $385 000. E) It should exit the market and experience an accounting loss of $250 000.

B) It should continue to operate even though it predicts an accounting loss of $115 000.

Which of the following must be true if a firm is experiencing economies of scale? A) All costs are explicit. B) Long-run average total cost decreases as the firm's output increases. C) Economic profits decrease as the firm's output increases. D) Long-run average total cost remains constant as the firm's output decreases. E) Proportionate increases in inputs result in less-than-proportionate increases in output.

B) Long-run average total cost decreases as the firm's output increases.

A perfectly competitive firm, earning economic profits, produces and sells 100 units of output at a price of $20 per unit. If its marginal cost of increasing output to a rate of 101 units is $18, which of the following statements is correct? A) The total revenue from selling 101 units is the same as the total revenue from selling 100 units B) The total profit from selling 101 units is $2 greater than the total profit from selling 100 units. C) The total cost of producing 101 units is $2 greater than the total cost of producing 100 units. D) To sell 101 units, the firm must reduce its price below $20. E) To sell 101 units, the firm must raise its price above $20.

B) The total profit from selling 101 units is $2 greater than the total profit from selling 100 units.

At 100 units of output, a firm's total cost is $10,000. If the firm's total fixed cost is $4,000, its average variable cost is equal to A) $140 B) $100 C) $60 D) $40 E) $0

C) $60

Assume that total fixed costs are $46, that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output? A) $2 B) $5 C) $7 D) $9 E) $12

C) $7

As output of a firm increases, the difference between the firm's average total cost and its average variable cost gets smaller because the firm's A) Total cost is increasing B) Marginal cost is increasing C) Average fixed cost is decreasing D) marginal product of labor is decreasing E) Long-run average total cost is decreasing

C) Average fixed cost is decreasing

If the output of a firm doubles when the firm doubles all of its inputs, the firm must be experiencing A) Economies of scale B) Increasing returns to scale C) Constant returns to scale D) Decreasing returns to scale E) Diseconomies of scale

C) Constant returns to scale

What will the exit of existing firms from a competitive market do to market supply and market prices? A) It will increase market supply and increase market prices. B) It will increase market supply and decrease market prices C) It will decrease market supply and increase market prices. D) It will decrease market supply and decrease market prices. E) Market supply and market prices will remain at equilibrium.

C) It will decrease market supply and increase market prices.

If a firm is experiencing economies of scale, which of the following will decrease as output increases? A) Fixed cost B) Long-run total cost C) Long-run average total cost D) Marginal cost E) Marginal revenue

C) Long-run average total cost

The table below shows a production function for a firm. Units of Variable Input Total Product 1 10 2 22 3 40 4 60 5 68 6 74 7 76 8 68 9 50 10 20 All of the following can be concluded from the information in the table EXCEPT: A) Diminishing marginal returns set in after the fourth unit of the variable input. B) Marginal product is positive if total product is increasing. C) This is a production function for a perfectly competitive firm. D) A profit-maximizing firm would never voluntarily employ the eighth unit of the variable input. E) Total product starts to decrease when marginal product changes from positive to negative.

C) This is a production function for a perfectly competitive firm.

The following question is based on the output and cost data in the table below. Quantity of Output Total Variable Total Produced (units) Cost ($) Cost ($) 1 100 200 2 190 290 3 270 370 4 340 440 5 420 520 6 510 610 7 610 710 According to the cost schedule in the table above, the firm's total fixed cost is A) Increasing B) Decreasing C) $90 D) $100 E) Impossible to determine

D) $100

If the marginal cost of producing the first unit of some good is $20 and the marginal cost of producing the second unit is $30, the average variable cost of producing 2 units is A) $5 B) $10 C) $20 D) $25 E) $50

D) $25

The following questions refer to the graph below showing cost curves for a perfectly competitive firm. If the market price is $10, how many widgets should this profit-maximizing firm produce? A) 3,000 B) 6,000 C) 12,000 D) 16,000 E) 21,000

D) 16,000

Economies of scale can be illustrated by A) An increasing short-run marginal cost curve as a firm produces more output B) A decreasing short-run average total cost curve as a firm produces more output C) A downward-sloping long-run supply curve for an industry D) A decreasing long-run average total cost curve as a firm produces more output E) An increasing long-run average total cost curve as a firm produces more output

D) A decreasing long-run average total cost curve as a firm produces more output

Which of the following is always true of the relationship between average and marginal costs? A) Average variable costs are increasing when marginal costs are increasing. B) Average total costs are increasing when marginal costs are increasing. C) Average total costs are constant when marginal costs are constant. D) Average variable costs are increasing when marginal costs are higher than average variable costs. E) Marginal costs are increasing when average variable costs are higher than marginal costs.

D) Average variable costs are increasing when marginal costs are higher than average variable costs.

The following questions are based on the table below, which shows a firm's average variable cost and average total cost. Output Average Variable Cost Average Total Cost 1 $40 $160 2 $35 $95 3 $40 $80 4 $45 $75 5 $50 $74 6 $55 $75 The average fixed cost of producing four units of output is equal to A) $120 B) $95 C) $ 75 D) $50 E) $30

E) $30

Which of the following industries would be the most perfectly competitive? A) Mexican food in a small town B) Smartphones C) Airlines D) Public utilities E) Corn

E) Corn

If there are many firms in an industry and each firm's product is indistinguishable from the products of all other firms, the individual firm's demand curve will be A) Upward sloping and different for each firm B) Downward sloping and different for each firm C) Downward sloping and identical for every firm D) Horizontal and different for each firm E) Horizontal and identical for every firm

E) Horizontal and identical for every firm

Jared runs a personal training studio and earned $5,000 last month. His fixed costs are $4,000 and variable costs are $3,500. Should Jared shut down his business immediately? A) Yes, because he is clearly losing money B) No, because he is making money C) No, because $5,000 covers his fixed costs D) Yes, because $5,000 cannot cover his fixed costs E) No, because $5,000 covers his variable costs

E) No, because $5,000 covers his variable costs