EC 110 Exam 3
Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price?
$11
Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be
$12
Doreen's Dairy produces and sells Swiss cheese. Last year, it produced 7,000 pounds and sold each pound for $6. In producing the 7,000 pounds, the dairy incurred variable costs of $28,000 and a total cost of $40,000.
$12,000
If Danielle sells 300 wrist bands for $0.50 each, her total revenues are
$150
If a monopolist sells 100 units at $8 per unit and realizes an average total cost of $6 per unit, what is the monopolist's profit?
$200
Kachina is a senior majoring in graphic design at Awesome University (AU). While she has been attending college, Kachina started a computer consulting business to help senior citizens learn how to use their iPads. Kachina charges $25 per hour for her consulting services. She also works 5 hours a week for the Economics Department to maintain that department's Web page. The Economics Department pays Kachina $20 per hour. If Kachina can work additional hours at either job, what is the opportunity cost if she spends one hour reading a novel?
$25
A firm has a fixed cost of $500 in its first year of operation. When the firm produces 100 units of output, its total costs are $3,500. When it produces 101 units of output, its total costs are $3,750. What is the marginal cost of producing the 101st unit of output?
$250
The information below applies to a competitive firm that sells its output for $40 per unit.• When the firm produces and sells 150 units of output, its average total cost is $24.50.• When the firm produces and sells 151 units of output, its average total cost is $24.55. When the firm increases its output from 150 units to 151 units, its marginal cost is
$32.05
Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $25 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce.
$380
Suppose a monopolist charges a price of $27 for its product and sells 10 units at that price. At 10 units of production the firm has average fixed cost equal to $10 and average variable cost equal to $12. How much total profit is the firm earning at this price?
$50
Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500.
$55,200
Price discrimination adds to social welfare in the form of (i) increased total surplus. (ii) reduced costs of production. (iii) increased consumer surplus.
(i) only
Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $600. (iii) Average revenue exceeds marginal revenue, but we don't know by how much.
(i) only
QUESTION 1 Pete owns a shoe-shine business. Which of the following costs would be implicit costs? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspapers (iv) interest that Pete's money was earning before he spent his savings to set up the shoe-shine business
(iii) and (iv) only
Which of the following is a characteristic of a natural monopoly?
- Average cost exceeds marginal cost over large regions of output. - Increasing the number of firms increases each firm's average total cost. - One firm can supply output at a lower cost than two firms.
On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?
- The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers. - The farmer is able to produce 5,400 bushels of wheat when he hires 4 workers. - The farmer is able to produce 5,200 bushels of wheat when he hires 4 workers.
Which of the following statements about a production function is correct for a firm that uses labor to produce output?
- The production function depicts the relationship between the quantity of labor and the quantity of output. - The slope of the production function measures marginal product. - The slopes of the production function and the total cost curve are inversely related; if one is increasing, the other is decreasing.
When deciding what price to charge consumers, the monopolist may choose to charge them different prices based on the customers'
- age - geographical location - income
Johnny is a sophomore in college and has a 1.5 cumulative grade point average (GPA). Johnny's cumulative GPA will fall even further next semester if he performs worse than
- his cumulative GPA. - he ever performed before.
Drug companies are allowed to be monopolists in the drugs they discover in order to
- increase the availability of expensive but useful medications. - increase the overall welfare of society through better health because drug companies continually produce better medications. - encourage research.
For a monopoly firm, the shape and position of the demand curve play a role in determining the
- profit-maximizing price. - shape and position of the marginal-revenue curve.
The marginal cost curve crosses the average total cost curve at
- the efficient scale. - the minimum point on the average total cost curve. - a point where the marginal cost curve is rising.
Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In the first year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane's economic profit from her first year in her own practice is
-$39,000
A monopoly firm can sell 150 units of output for $10 per unit. Alternatively, it can sell 151 units of output for $9.90 per unit. The marginal revenue of the 151st unit of output is
-$5.10
Which of the following statements is correct? a. For most producers, the average total cost curve never crosses the marginal cost curve. b. The average total cost curve first rises, then falls with increased output. c. The average fixed cost curve must eventually rise. d. The marginal cost curve eventually rises with the quantity of output.
The marginal cost curve eventually rises with the quantity of output.
Shelley's Salsa produces and sells organic salsa. Last year it sold 3 million tubs of salsa at a price of $3 per tub. For last year, the firm's
Total revenue was $9 million
You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $12 value on reading a book.
You should go home and read a book.
Suppose that for a particular business there are no implicit costs. Then
accounting profit will be the same as economic profit.
For an individual firm operating in a competitive market, marginal revenue equals
average revenue and the price for all levels of output.
When a firm is operating at an efficient scale,
average total cost is minimized
At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the
average total cost of 21 pairs of boots is $23.
When a monopolist decreases the price of its good, consumers
buy more
Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML does not
choose the price at which it sells its butter.
The exit of existing firms from a competitive market will
decrease market supply and increase market price.
Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 500 pumpkins. If she plants 2 bags, she gets 800 pumpkins. If she plants 3 bags, she gets 900 pumpkins. A bag of seeds costs $100, and seeds are her only cost. Joan's production function exhibits
decreasing marginal product
If a production function shows declining marginal product of an input as the quantity of the input increases, then the production function exhibits
decreasing marginal product.
Some costs do not vary with the quantity of output produced. Those costs are called
fixed costs
A benefit of a monopoly is
greater creativity by authors who can copyright their novels.
Assume a certain firm regards the number of workers it employs as variable but regards the size of its factory as fixed. This assumption is often realistic
in the short run but not in the long run
If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Farmer Brown's marginal-cost curve is
increasing
Exclusive ownership of a key resource
is a potential but rare cause of a monopoly.
Price discrimination
is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.
If marginal cost is below average total cost, then average total cost
is falling
A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if
it has some degree of monopoly-pricing power.
In order to sell more of its product, a monopolist must
lower its price
Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should
make fewer than 20 wedding cakes per month.
Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's
marginal cost exceeds her marginal revenue
Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run
more firms will enter the market.
In a competitive market,
no single buyer or seller can influence the price of the product
Which of the following is not a characteristic of a monopoly?
one buyer
Customers who purchase an audio CD from Sally's Sounds are charged 20% more than customers who purchase the audio CD from the Sally's Sounds website. This is an example of
price discrimination.
Diminishing marginal product suggests that the marginal
product of an extra worker is less than the previous worker's marginal product.
For a firm, the relationship between the quantity of inputs and quantity of output is called the
production function
Economists assume that monopolists behave as
profit maximizers
Economists assume that the goal of the firm is to maximize total
profits
A competitive firm has been selling its output for $10 per unit and has been maximizing its profit. Then, the price rises to $14, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its
quantity of output is higher than it was previously.
A total-cost curve shows the relationship between the
quantity of output produced and the total cost of production.
Price discrimination requires the firm to
separate customers according to their willingnesses to pay.
Competitive firms that earn a loss in the short run should
shut down if P < AVC.
When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing
the entry of new firms.
When calculating a firm's profit, an economist will subtract only
the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm.
Which of the following is an example of an implicit cost?
the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm
The assumption of a fixed number of firms is appropriate for analysis of
the short run but not the long run.
Average total cost is equal to
total cost/output
For a firm operating in a competitive industry, which of the following statements is not correct?
total revenue is constant
A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its
variable costs
When a firm is able to put idle equipment to use by hiring another worker,
variable costs will rise
If the profit-maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm
will have economic profit less than zero at the profit-maximizing quantity.
A monopoly's marginal cost will
be less than the price per unit of its product
For a particular competitive firm, the minimum value of average variable cost (AVC) is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC) is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?
In the long run, the firm will shut down if the price of its product is $11.
Which of the following statements is not correct about competitive firms?
In the short run, firms must be operating at a level of output where price equals average variable cost.
Total revenue equals
Price x Quantity
Which of the following is a characteristic of a monopoly?
barriers to entry
Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has earned $4,500 in monthly revenue. In the short run, Susan should
continue to operate her business, but in the long run she will probably face competition from newly entering firms.
