Chapter 11

Table: Barrels of Oil (Table: Barrels of Oil) Refer to the table. What is the marginal revenue of producing the fifth barrel of oil? A. 50 B. 250 C. 200 D. 61

A. 50

Table: Barrels of Oil Reference: Ref 11-2 (Table: Barrels of Oil) Refer to the table. How many barrels of oil should the company produce to maximize profit? A. 8 B. 9 C. 6 D. 7

A. 8

What condition is necessary in a constant cost industry? A. Prices of the industry's inputs do not change as the industry expands. B. Prices of the industry's inputs rise as the industry expands. C. Prices of the industry's inputs decline as the industry expands. D. There are barriers that prevent new firms from entering such an industry.

A. Prices of the industry's inputs do not change as the industry expands.

In an increasing cost industry: A. above-normal profits are eliminated for all firms in the long run. B. profits rise as output decreases. C. costs rise as output decreases. D. above-normal profits are eliminated for only some firms in the long run.

A. above-normal profits are eliminated for all firms in the long run.

The oil industry is an increasing-cost industry because: A. expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations. B. people buy more oil at lower prices. C. because oil is a necessity good. D. All of these statements are correct.

A. expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations.

Table: Oil Production Reference: Ref 11-5 (Table: Oil Production) Refer to the table. What is the total cost of producing eight barrels of oil? A. $50 B. $206 C. $336 D. $178

B. $206

Table: Barrels of Oil Reference: Ref 11-2 (Table: Barrels of Oil) Refer to the table. The maximum profit available to the company is: A. $210. B. $224. C. $266. D. $184.

B. $224.

Figure: Costs Reference: Ref 11-6 (Figure: Costs) Use the figure. At a price of $20, the firm earns profit of: A. $0, because P = MC at P = $20. B. $75. C. $300. D. $225.

B. $75.

Table: Barrels of Oil Reference: Ref 11-2 (Table: Barrels of Oil) Refer to the table. What is the marginal cost of producing the seventh barrel of oil? A. 50 B. 36 C. 126 D. 90

B. 36

Table: Barrels of Oil Price of Oil = Reference: Ref 11-1 (Table: Barrels of Oil) Refer to the table. The profit-maximizing level of output is ________ barrels of oil. A. 7 B. 5 C. 1 D. 3

B. 5

Table: Barrels of Oil Reference: Ref 11-1 (Table: Barrels of Oil) Refer to the table. The change in profit from producing the second barrel of oil is ________, and the marginal cost from producing the seventh barrel of oil is ________. A. $140; $140 B. $140; $20 C. $60; $140 D. $100; $20

C. $60; $140

(Figure: Profit Maximizing Output) Use the figure. The profit-maximizing output for this firm is: Figure: Profit Maximizing Output A. 9. B. 6. C. 40. D. 3.

C. 40.

Which of the following statements are TRUE? A firm's entry/exit decision is about: I. whether profits are positive or negative now. II. whether the stream of future profits is positive or negative. III. government regulations. A. I, II, and III B. I only C. I and II only D. II and III only

C. I and II only

Profit can be shown graphically by depicting a firm's costs and revenues, and is determined mathematically by calculating the: A. area of the box that is average cost times quantity. B. area of the box that is price times quantity. C. area of the box that is (price minus average cost) times the quantity. D. distance from price to average cost.

C. area of the box that is (price minus average cost) times the quantity.

Firms in a perfectly competitive industry maximize profits by: A. producing a higher quality good and setting a price higher than the competition. B. eliminating the competition. C. setting a price equal to the market price. D. setting a price less than the market price and undercutting the competition.

C. setting a price equal to the market price.

Table: Oil Production Reference: Ref 11-5 (Table: Oil Production) Refer to the table. What are the fixed costs of production for this firm? A. $50 B. $4 C. $34 D. $30

D. $30

In a constant cost industry, the market price and average cost are equal to $23. Therefore, which of the following is correct? A. An increase in demand will cause the short-run price to rise above $23 but, in the long run, the price will return to $23. B. An increase in demand will cause profits to rise and firms to enter the industry until profits return to normal. C. A decrease in demand will cause market price to fall below average cost and thus firms will earn negative profits. D. All of the answers are correct.

D. All of the answers are correct.

Firms in competitive industries: I. can only charge a price equal to the market price. II. cannot charge any more than the market price. III. will earn less profit if they charge less than the market price. A. II only B. I and III only C. I only D. I, II, and III

D. I, II, and III

Economic profit differs from accounting profits because of its inclusion of: A. explicit costs. B. incidental costs. C. potential costs. D. implicit costs.

D. implicit costs.

As the price of a good fluctuates, a profit-maximizing firm will expand or contract production along its: A. average cost curve. B. average product curve. C. marginal product curve. D. marginal cost curve.

D. marginal cost curve.