ag econ review
If a firm spends $400 to produce 20 units of output and spends $880 to produce 40 units, then between 20 and 40 units of output, the marginal cost of production is:
$24 (880-400/20)
A firm's profit equals:
(P - ATC) ◊ Q [(price minus average total cost) times the quantity sold]
What is the long run?
: The long run is a period of time of sufficient length that all the firm's factors of production are variable.
The price equals marginal cost rule for profit maximization is a specific example of which core principle?
B. The Cost-Benefit Principle.
A fixed factor of production:
B. is fixed only in the short run.
When plotting marginal and average cost curves, the ______ cost curve always crosses the ______ cost curve at its ______.
B. marginal; average total; minimum
Which of the following is NOT a characteristic of a perfectly competitive market?
Buyers and sellers are well-informed.
Which of the following is a defining characteristic of all perfectly competitive markets?
C. All firms sell the same standardized product.
. Which of the following is NOT true of a perfectly competitive firm?
C. It seeks to maximize revenue.
According to the law of diminishing returns, when some factors of production are fixed, in order to increase production by a given amount, a firm will eventually need to add successively:
C. larger and larger quantities of the variable factors of production.
What is the short run?
The short run is a period of time sufficiently short that at least some of a firm's factors of production are fixed.
Average total cost is defined as:
Total cost divided by total output
Average variable cost is defined as:
Variable cost divided by total output
A technological innovation that reduces a firm's cost of producing additional units of output will lead to:
a decrease in the firm's supply.
If crude oil is a variable factor of production for a firm, then an increase in the price of crude oil will lead to
a decrease in the firm's supply.
Suppose a perfectly competitive firm is producing 77 units of output, and the marginal cost of the 77th unit is 11. If the firm can sell each unit of output for $8 and the firm's revenue is sufficient to cover its variable cost, the firm should:
decrease production
Suppose a profit-maximizing firm in a perfectly competitive market is earning an economic profit of $1,345. If the firm's fixed cost increases from $200 to $300, the firm will:
earn a smaller profit.
Suppose a profit-maximizing firm in a perfectly competitive market is collecting $1,999 in total revenues. If the total cost of its fixed factors of production falls from $500 to $400, the firm will:
earn greater profits or smaller losses.
If a firm shuts down in the short run, then its:
economic loss will equal its fixed costs.
If a perfectly competitive firm produces an output level at which price is greater than marginal cost, then the firm should:
expand output to earn greater profits or smaller losses.
To produce 150 units of output, a firm must use 3 employee-hours. To produce 300 units of output, the firm must use 8 employee-hours. Apparently, the firm is:
experiencing diminishing returns.
In the short run, a profit-maximizing firm will not shut down if its total revenue is:
greater than or equal to its variable cost.
. Suppose a perfectly competitive firm is producing 37 units output, and the marginal cost of the 37th unit is $3. If the firm can sell each unit of output for $5 and the firm's revenue is sufficient to cover its variable cost, the firm should:
increase production
A variable factor of production:
is variable in both the short run and the long run.
A profit-maximizing firm will only produce a positive amount of output if:
its total revenue is greater than or equal to its variable cost.
Suppose a perfectly competitive firm is producing 1,000 units of output and the marginal cost of the 1,000th unit is $7. If the firm can sell each unit of output for $7 and the firm's revenue is sufficient to cover its variable cost, the firm should:
leave production unchanged.
A profit-maximizing firm will shut down if, at the firm's profit maximizing level of output, its total revenue is ______
less than its variable cost.
In general, perfectly competitive firms maximize profit if they produce a level of output at which:
marginal cost equals price.
In general, when the price of a fixed factor of production increases:
marginal cost is unchanged
In general, when the price of a variable factor of production increases:
marginal cost rises.
If a production process exhibits diminishing returns, then as output rises:
marginal cost will eventually increase.
A perfectly competitive firm's supply curve is the portion of its ______ cost curve that lies above its ______ cost curve.
marginal; average variable
The primary objective of most private firms is to:
maximize profit
Suppose that at a firm's profit-maximizing level of output, its total revenue is $1,250, the total cost of its variable factors of production is $1,000, and its total fixed cost is $500. This firm will ______ in the short run, and will ______ in the long run.
not shut down; exit the industry
A profit-maximizing perfectly competitive firm must decide:
only on how much to produce, taking price as fixed.
A seller's supply curve shows the seller's:
opportunity cost of producing an additional unit of output at each quantity.
Assume that each day a firm uses 13 employee-hours and an office to produce 100 units of output. The price of each unit output is $5, the hourly wage rate is $10, and rent on the office is $200 per day. Each day the firm earns a ______ of ______.
profit $170
If a perfectly competitive firm produces an output level at which price is less than marginal costs, then the firm should:
reduce output to earn greater profits or smaller losses.
Suppose that when a perfectly competitive firm produces 500 units of output a day, it earns an economic loss. If the price of each unit of output is $1.50, then, in the short run, it's clear that this firm:
should not shut down if its total variable cost is less than $750.
Suppose that when a perfectly competitive firm produces 1,000 units of output, its total variable cost is $1,900. If the marginal cost of producing the 1,000th unit is $1.70, and if the market price of each unit of output is $1.70, then the firm should:
shut down
Marginal cost is calculated as:
the change in total costs divided by the change in output
One reason that variable factors of production tend to show diminishing returns in the short run is that:
there is only so much that can be produced using additional variable inputs when some factors of production are fixed.
Individual supply curves generally slope ______ because ______.
upward; of increasing opportunity costs.
