ECON 130 EXAM 3
Cameron's Lamp Emporium produced 300 lamps but sold only 230 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 230 units sold was $90. Total profit for Cameron's Lamp Emporium would be A.-$2,300. B.$20,700. C.$27,000. D.$30,000.
a
Chloe gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 4 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Chloe's accounting profits are A. $100, and her economic profits are $40. B. $100, and her economic profits are $15. C. $40, and her economic profits are $100. D. $15, and her economic profits are $140.
a
Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will A.increase price in the short run but not in the long run. B.increase price in the long run but not in the short run. C.increase price both in the short and the long run. D.not affect price in either the short or the long run.
a
For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $11 and a marginal cost of $10. It follows that the A. production of the 100th unit of output increases the firm's profit by $1. B. production of the 100th unit of output increases the firm's average total cost by $1. C. firm's profit-maximizing level of output is less than 100 units. D. production of the 101st unit of output must increase the firm's profit by more than $1.
a
For an individual firm operating in a competitive market, marginal revenue equals A. average revenue and the price for all levels of output. B. average revenue, which is greater than the price for all levels of output. C. average revenue, the price, and marginal cost for all levels of output. D. marginal cost, which is greater than average revenue for all levels of output.
a
The accountants hired by Forever Fitness have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, Forever Fitness should A.shut down because staying open would be more expensive. B.lower their prices to increase their profits. C.stay open because shutting down would be more expensive. D.stay open because the firm is making an economic profit.
a
Which of the following expressions is correct for a competitive firm? A. Profit = (quantity of output) × (price − average total cost) B. Marginal revenue = (change in total revenue)/(quantity of output) C. Average total cost = total variable cost/quantity of output D. Average revenue = (marginal revenue) × (quantity of output)
a
A firm cannot price discriminate if A.it has declining marginal revenue.B.it operates in a competitive market. C.buyers only reveal the price they are willing to pay for the product. D.it has a constant marginal cost.
b
A firm in a competitive market has the following cost structure: Quantity (Units) Marginal Cost (Dollars) 0--15210315420525 Refer to Table 14-9. Consider a competitive market with 50 identical firms. Suppose the market demand is given by the equation QD = 200 − 10P and the market supply is given by the equation QS = 10P. How many units should a firm in this market produce to maximize profit? A.1 unitB.2 units C.3 units D.4 units
b
A firm that shuts down temporarily has to pay A.its variable costs but not its fixed costs.B.its fixed costs but not its variable costs. C.both its variable costs and its fixed costs. D.neither its variable costs nor its fixed costs.
b
A natural monopoly occurs when A.the product is sold in its natural state, such as water or diamonds.B.there are economies of scale over the relevant range of output. C.the firm is characterized by a rising marginal cost curve. D.production requires the use of free natural resources, such as water or air.
b
Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is A.−$1,600.B.$1,600. C.$3,200. D.$8,000.
b
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then A.a one-unit increase in output will increase the firm's profit.B.a one-unit decrease in output will increase the firm's profit. C.total revenue exceeds total cost. D.total cost exceeds total revenue.
b
Suppose that a firm in a competitive market faces the following revenues and costs: Quantity (Units) Total Revenue (Dollars) Total Cost (Dollars) 00316521283181242417530236363074238 Refer to Table 14-6. The firm should not produce an output level beyond A.4 units.B.5 units. C.6 units. D.7 units.
b
The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways? A.A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost. B.A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost. C.For a com
b
When marginal revenue equals marginal cost, the firm A.should increase the level of production to maximize its profit.B.may be minimizing its losses rather than maximizing its profit. C.must be generating positive economic profits. D.must be generating positive accounting profits.
b
When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is A.downward sloping.B.upward sloping. C.horizontal. D.vertical.
b
Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue A. increases if MR < ATC and decreases if MR > ATC. B. does not change. C. always increases. D. always decreases.
b
Which of the following is not an example of price discrimination by a firm? A.Children's meals at a restaurantB.A natural gas company charging all customers a higher rate in the winter than in summer C.Discounts for educators at a clothing store D.Bulk pricing for online retail
b
Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output A. is less than 1,000 pounds. B. is still 1,000 pounds. C. is more than 1,000 pounds. D. becomes zero.
b
A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will A. fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. B. fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. C. fall in the short run. All, some, or no firms will shut down, and some of them will exit
c
A difference between explicit and implicit costs is that A. explicit costs must be greater than implicit costs. B. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do. C. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do. D. implicit costs must be greater than explicit costs.
c
A firm in a competitive market has the following cost structure. Quantity (Units) Average Total Cost (Dollars) 0--110283748510 Refer to Table 14-8. If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm produce to maximize profit? A. 1 unit B. 2 units C. 3 units D. 4 units
c
An example of an explicit cost of production would be the A. cost of forgone labor earnings for an entrepreneur. B. lost opportunity to invest in capital markets when the money is invested in one's business. C. lease payments for the land on which a firm's factory stands. D. value of the time the business could've spent producing something else.
c
For a firm to price discriminate, A.it must be a natural monopoly. B.it must be regulated by the government.C.it must have some market power. D.consumers must tell the firm what they are willing to pay for the product.
c
If Buddy's Build A Bear Shop sells its product in a competitive market, then A. the price of that product depends on the quantity of the product that Buddy's Build A Bear Shop produces and sells because the firm's demand curve is downward sloping. B. Buddy's Build A Bear Shop total cost must be a constant multiple of its quantity of output. C. Buddy's Build A Bear Shop total revenue must be proportional to its quantity of output. D. Buddy's Build A Bear Shop total revenue must be equal to its av
c
If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then A. its total cost is more than $9,000. B. its marginal revenue is less than $10. C. its average total cost is less than $10. D. the firm cannot be a competitive firm because competitive firms cannot earn positive profits.
c
If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will A. less than triple. B. more than triple. C. exactly triple. D. be reduced by one third.
c
In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run? A. $0 per unit B. $1 per unit C. $2 per unit D. $3 per unit
c
In a natural monopoly, A.society would be better off if antitrust laws were used to create many different firms in the market. B.the marginal cost curve is positively sloped.C.if the government requires marginal cost pricing, it will likely have to subsidize the firm. D.the marginal revenue curve is horizontal.
c
Lim Industries has average variable costs of $1 and average total costs of $4 when it produces 900 units of output. The firm's total fixed costs equal A. $3. B. $5. C. $2,700. D. $3,700.
c
Lim Industries has average variable costs of $1 and average total costs of $4 when it produces 900 units of output. The firm's total fixed costs equal A.$3. B.$5.C.$2,700. D.$3,700.
c
Ms. Joplin sells colored pencils. The colored-pencil industry is competitive. Ms. Joplin hires a business consultant to analyze her company's financial records. The consultant recommends that Ms. Joplin increase her production. The consultant must have concluded that, at her current level of production, Ms. Joplin's A. total revenues equal her total economic costs. B. marginal revenue exceeds her total cost. C. marginal revenue exceeds her marginal cost. D. marginal cost exceeds her marginal rev
c
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 A. less than $12. B. more than $12. C. $12. D. zero.
c
Suppose a monopolist faces the following demand curve: Price (Dollars per unit) Quantity (Units) 830074006500560047003800290011,000 Refer to Table 15-2. The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit. If the monopolist were able to perfectly price discriminate, how many units would it sell? A. 400 B. 500 C. 900Feedback: D. 4,200
c
Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers A. both labor and capital to be fixed. B. both labor and capital to be variable. C. labor to be variable and capital to be fixed. D. capital to be variable and labor to be fixed.
c
Suppose that a firm in a competitive market faces the following revenues and costs: Quantity (Units) Total Revenue (Dollars) Total Cost (Dollars) 00316521283181242417530236363074238 Refer to Table 14-6. The firm will produce a quantity greater than three because at 3 units of output, marginal cost A.is greater than marginal revenue. B.equals marginal revenue.C.is less than marginal revenue. D.is minimized.
c
Suppose that a firm in a competitive market faces the following revenues and costs: Quantity (Units) Total Revenue (Dollars) Total Cost (Dollars) 00316521283181242417530236363074238 Refer to Table 14-6. The firm will produce a quantity greater than three because at 3 units of output, marginal cost A. is greater than marginal revenue. B. equals marginal revenue. C. is less than marginal revenue. D. is minimized.
c
The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average A. fixed cost. B. variable cost. C. total cost. D. revenue.
c
The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average A.fixed cost. B.variable cost.C.total cost. D.revenue.
c
The long-run market supply curve in a competitive market will A. always be horizontal. B. be the portion of the MC that lies above the minimum of AVC for the marginal firm. C. typically be more elastic than the short-run supply curve. D. be above the competitive firm's efficient scale.
c
To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output where A.MR = MC. B.MR intersects the demand curve.C.MC intersects the demand curve. D.MR exceeds MC by the greatest amount.
c
Total cost is the A. amount a firm receives for the sale of its output. B. fixed cost less variable cost. C. market value of the inputs a firm uses in production. D. quantity of output minus the quantity of inputs used to make a good.
c
When a firm experiences economies of scale, A. short-run average total cost is maximized. B. long-run average total cost is maximized. C. long-run average total cost decreases as output increases. D. long-run average total cost increases as output increases.
c
When marginal cost is less than average total cost, A.marginal cost must be falling. B.average variable cost must be falling.C.average total cost is falling. D.average total cost is rising.
c
Which of the following industries is most likely to exhibit the characteristic of free entry? A. Mineral mining B. Electricity C. Fashion jewelry D. Satellite radio
c
Which of the following is an example of an implicit cost? A. Interest paid on the firm's debt B. Rent paid by the firm to lease office space C. The owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm D. Wages paid to workers
c
Which of the following is an example of an implicit cost? A.Interest paid on the firm's debt B.Rent paid by the firm to lease office spaceC.The owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm D.Wages paid to workers
c
hen profit-maximizing firms in competitive markets are earning profits, A. market demand must exceed market supply at the market equilibrium price. B. market supply must exceed market demand at the market equilibrium price. C. new firms will enter the market. D. the most inefficient firms will be encouraged to leave the market.
c
If a firm produces nothing, which of the following costs will be zero? A. Total cost B. Fixed cost C. Opportunity cost D. Variable cost
d
Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. William can arrange 18 bouquets per day. What would be the total daily output of Kate's firm if she hired her husband? A. 18 bouquets B. 19 bouquets C. 20 bouquets D. 38 bouquets
d
Marginal cost is equal to average total cost when A. average variable cost is falling. B. average fixed cost is rising. C. marginal cost is at its minimum. D. average total cost is at its minimum.
d
Price discrimination A.is illegal in the United States and Europe. B.can occur in both perfectly competitive and monopoly markets. C.is illogical because it does not maximize profits.D.can maximize profits if the seller can prevent the resale of goods between customers.
d
Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do? A. Shut down the business B. Produce more custom-made shoes C. Decrease the price D. Produce fewer custom-made shoes
d
Ren's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $120 for 10,000 tents. At that level of output, the firm's average total costs equal A.$120 B.$130 C.$140D.$150
d
Suppose a firm in a competitive market earned $2,000 in total revenue and had a marginal revenue of $20 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold? A.$5 and 50 units B.$5 and 100 units C.$100 and 20 unitsD.$20 and 100 units
d
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output are produced is $80, and the marginal cost of the sixth unit of output is $160. What is the average total cost when six units are produced? A.$80.00 B.$83.33 C.$88.33D.$93.33
d
The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which A. total revenue is equal to variable cost. B. total revenue is equal to fixed cost. C. total revenue is equal to total cost. D. profit is maximized.
d
The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which A.total revenue is equal to variable cost. B.total revenue is equal to fixed cost. C.total revenue is equal to total cost.D.profit is maximized.
d
The law passed by Congress in 1890 to reduce the market power of the dominating trusts at that time was A.the 14th Amendment. B.the Clayton Antitrust Act. C.the 19th Amendment.D.the Sherman Antitrust Act.
d
When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly A.will experience positive profit. B.will experience a price above average total cost. C.does not need a government subsidy to remain in business.D.will experience a loss.
d
Which of the following can defeat the profit-maximizing strategy of price discrimination? A.Consumer surplus B.Deadweight loss C.Market powerD.Arbitrage
d
Which of the following is not an example of a barrier to entry? A.Ruby's Mining Company owns a unique plot of land in Utah, under which lies the only large deposit of Red beryl in the world. B.A pharmaceutical company obtains a patent for a specific allergy medication. C.A musician obtains a copyright for her original song.D.An entrepreneur opens a popular new restaurant.
d
Which of the following represents the firm's short-run condition for shutting down? A. Shut down if TR < TC B. Shut down if TR < FC C. Shut down if P < ATC D. Shut down if TR < VC
d
Which of the following statements is correct? A. For all firms, marginal revenue equals the price of the good. B. Only for competitive firms does average revenue equal the price of the good. C. Marginal revenue can be calculated as total revenue divided by the quantity sold. D. Only for competitive firms does average revenue equal marginal revenue.
d
Which of the following statements regarding a competitive firm is correct? A. Because each firm faces a downward sloping demand, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. B. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. C. By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sol
d
Who is a price taker in a competitive market? A. Buyers only B. Sellers only C. Neither buyers nor sellers D. Both buyers and sellers
d
A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost but greater than the firm's average fixed cost. A. TrueB. False
false
A monopolist maximizes profit by producing an output level where marginal cost equals price. True False
false
A monopolist produces an output level where marginal revenue equals marginal cost and charges a price where marginal cost equals average total cost. True False
false
A monopolist's profit is equal to (Price - Marginal Cost) × Quantity. True False
false
Average total cost reveals how much total cost will change as the firm alters its level of production. A. TrueB. False
false
Average total cost reveals how much total cost will change as the firm alters its level of production. True False
false
Diminishing marginal product exists when the total cost curve becomes horizontal as outputs increases. A. TrueB. False
false
Diminishing marginal product exists when the total cost curve becomes horizontal as outputs increases. True False
false
Economists and accountants both include forgone income as a cost to a small business owner. A. TrueB. False
false
For a firm operating in a competitive market, both marginal revenue and average revenue exceed the market price. A. TrueB. False
false
For a firm operating in a perfectly competitive industry, total revenue, marginal revenue, and average revenue are all equal. A. TrueB. False
false
For a typical firm, fixed costs increase in direct proportion to the increases in output. A. TrueB. False
false
If a firm notices that its average revenue equals the current market price, that firm must be participating in a competitive market. A. TrueB. False
false
In competitive markets, firms that raise their prices are typically rewarded with larger profits. True False
false
In the short run, a firm should exit the industry if its marginal cost exceeds its marginal revenue. A. TrueB. False
false
In the short run, if the market price is below the firm's average total cost of production, the firm will always shut down. A. TrueB. False
false
Marginal costs are costs that do not vary with the quantity of output produced. True False
false
The average-total-cost curve is unaffected by diminishing marginal product. True False
false
The graph of the production function plots total cost versus quantity of output. A. TrueB. False
false
The profit that a monopolist earns represents a loss to society that is measured through deadweight loss. True False
false
The shape of the total-cost curve is unrelated to the shape of the production function. True False
false
The two characteristics of a competitive market are 1) many buyers and sellers in the market and 2) the goods offered by the various sellers are highly differentiated. A. TrueB. False
false
The typical total-cost curve is U-shaped. A. TrueB. False
false
When an individual firm in a competitive market increases its production, it is likely that the market price will fall. A. TrueB. False
false
When economists speak of a firm's costs, they are usually excluding the opportunity costs. A. TrueB. False
false
A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $5. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses). A. TrueB. False
true
A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $5. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses). True False
true
A firm operating in a perfectly competitive industry will shut down in the short run but earn losses if the market price is less than that firm's average variable cost. True False
true
A monopolist produces where P > MC = MR. True False
true
A natural monopoly has economies of scale for most if not all of its range of output. True False
true
A profit-maximizing firm in a competitive market will decrease production when marginal cost exceeds average revenue. True False
true
A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost. A. TrueB. False
true
A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost. True False
true
A second or third worker may have a higher marginal product than the first worker in certain circumstances. A. TrueB. False
true
Accountants keep track of the money that flows into and out of firms. True False
true
An example of an explicit cost would be the wages that a business owner pays her employees. A. TrueB. False
true
An example of an explicit cost would be the wages that a business owner pays her employees. True False
true
Because nothing can be done about sunk costs, they are irrelevant to decisions about business strategy. A. TrueB. False
true
Economists and accountants usually disagree on the inclusion of implicit costs into the cost analysis of a firm. A. TrueB. False
true
Even with market power, monopolists cannot achieve any level of profit they desire because they will sell lower quantities at higher prices. True False
true
Firms operating in perfectly competitive markets produce an output level where marginal revenue equals marginal cost. A. TrueB. False
true
Firms operating in perfectly competitive markets produce an output level where marginal revenue equals marginal cost. True False
true
If a firm produces nothing, it still incurs its fixed costs. A. TrueB. False
true
Implicit costs are costs that do not require an outlay of money by the firm. A. TrueB. False
true
In a competitive market, firms are unable to differentiate their product from that of other producers. A. TrueB. False
true
Suppose a firm is considering producing zero units of output. We call this shutting down in the short run and exiting an industry in the long run. True False
true
Suppose that a worker can produce 100 units of output in 7 hours. In the 8th hour, he can produce 12 units of output. The worker can produce 112 units of output in 8 hours. A. TrueB. False
true
Suppose that a worker can produce 100 units of output in 7 hours. In the 8th hour, he can produce 12 units of output. The worker can produce 112 units of output in 8 hours. True False
true
The field of industrial organization addresses how the number of firms affects prices in a market and the efficiency of the market outcome. A. TrueB. False
true
The fundamental cause of monopolies is barriers to entry. True False
true
The marginal firm in a competitive market will earn zero economic profit in the long run. A. TrueB. False
true
The opportunity cost of capital is an implicit cost almost every business incurs. A. TrueB. False
true
The opportunity cost of capital is an implicit cost almost every business incurs. True False
true
When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production. A. TrueB. False
true
Omar's Car Wash has average variable costs of $4 and average fixed costs of $5 when it produces 200 units of output (car washes). The firm's total cost is A. $800. B. $1,000. C. $200. D. $1,800.
1,800
The average fixed cost curve A. always declines with increased levels of output. B. always rises with increased levels of output. C. declines as long as it is above marginal cost. D. declines as long as it is below marginal cost
A. always declines with increased levels of output.
If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would A. slope downward. B. be horizontal. C. slope upward. D. slope downward for low output levels and upward for high output levels.
B
Which of the following statements is correct? A. Assuming that explicit costs are positive, economic profit is greater than accounting profit. B. Assuming that implicit costs are positive, accounting profit is greater than economic profit. C. Assuming that explicit costs are positive, accounting profit is equal to economic profit. D. Assuming that implicit costs are positive, economic profit is positive.
B. Assuming that implicit costs are positive, accounting profit is greater than economic profit.
The minimum points of the average variable cost and average total cost curves occur where the A. marginal cost curve lies below the average variable cost and average total cost curves. B. marginal cost curve intersects those curves. C. average variable cost and average total cost curves intersect. D. slope of total cost is the smallest.
B. marginal cost curve intersects those curves.
Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business? A. $30 B. $140 C. $170 D. $300
C
Jacqui decides to open her own business and earns $90,000 in accounting profit the first year. When deciding to open her own business, she withdrew $20,000 from her savings, which earned 3 percent interest. She also turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running her own business? A. $49,400 B. $89,400 C. $44,400 D. $59,400
C. $44,400
Suppose a certain firm is able to produce 110 units of output per day when 12 workers are hired. The firm is able to produce 120 units of output per day when 13 workers are hired, holding other inputs fixed. The marginal product of the 13th worker is A. 4 units of output. B. 5 units of output. C. 10 units of output. D. 120 units of output.
C. 10 units of output.
Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's A. total revenue. B. explicit costs. C. implicit costs. D. marginal costs.
C. implicit costs.
If a firm uses labor to produce output, the firm's production function depicts the relationship between A. the number of workers and the quantity of output. B. marginal product and marginal cost. C. the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor. D. fixed inputs and variable inputs in the short run.
a
Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is A. 8 units of output. B. 10 units of output. C. 122 units of output. D. 132 units of output.
a
Suppose that a firm's long-run average total costs of producing televisions decreases as it produces between 70,000 and 80,000 televisions. For this range of output, the firm is experiencing A. economies of scale. B. constant returns to scale. C. diseconomies of scale. D. coordination problems.
a
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when four units of output are produced, the total cost is $175, and the average variable cost is $33.75. What would the average fixed cost be if ten units were produced? A. $4 B. $10 C. $40 D. $135
a
Total revenue equals A.price × quantity. B.price/quantity. C.(price × quantity) − total cost. D.output − input.
a
When a firm experiences constant returns to scale, A. long-run average total cost is unchanged, even when output increases. B. long-run marginal cost is greater than long-run average total cost. C. long-run marginal cost is less than long-run average total cost. D. the firm is experiencing coordination problems.
a
A key characteristic of a competitive market is that A. government antitrust laws regulate competition. B. producers sell nearly identical products. C. firms minimize total costs. D. firms have price setting power.
b
For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? A.The $20 million payment that the firm pays each year for accounting servicesB.The cost of the steel that is used in producing automobiles C.The rent that the firm pays for office space in a suburb of St. Louis D.The cost of internet advertising incurred each year
b
If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then A. a one-unit increase in output will increase the firm's profit. B. a one-unit decrease in output will increase the firm's profit. C. total revenue exceeds total cost. D. total cost exceeds total revenue.
b
If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would A.slope downward.B.be horizontal. C.slope upward. D.slope downward for low output levels and upward for high output levels.
b
Robin owns a horse stable and riding academy and gives riding lessons for children at "pony camp." His business operates in a competitive industry. Robin gives riding lessons to 20 children per month. His monthly total revenue is $4,000. The marginal cost of pony camp is $250 per child. In order to maximize profits, Robin should A. give riding lessons to more than 20 children per month. B. give riding lessons to fewer than 20 children per month. C. continue to give riding lessons to 20 children
b
Suppose a firm in a competitive market increases its output by 25 percent. As a result, the price of its output is likely to A. decline by 25 percent. B. remain unchanged. C. increase by less than 25 percent. D. decline by more than 25 percent.
b
Suppose that a firm in a competitive market faces the following revenues and costs: Quantity (Units) Total Revenue (Dollars) Total Cost (Dollars) 00316521283181242417530236363074238 Refer to Table 14-6. The firm should not produce an output level beyond A. 4 units. B. 5 units.Feedback: C. 6 units. D. 7 units.
b
Suppose that for a particular business there are no implicit costs. Then A. accounting profit will be greater than economic profit. B. accounting profit will be the same as economic profit. C. accounting profit will be less than economic profit. D. the relationship between accounting profit and economic profit cannot be determined without more information.
b
Suppose that for a particular business there are no implicit costs. Then A.accounting profit will be greater than economic profit.B.accounting profit will be the same as economic profit. C.accounting profit will be less than economic profit. D.the relationship between accounting profit and economic profit cannot be determined without more information.
b
The Bow Wow company produced and sold 400 dog beds. The average cost of production per dog bed was $40. Each dog bed can be sold for a price of $75. Bow Wow's total costs are A. $17,500. B. $16,000. C. $30,000. D. $46,000.
b
The most likely explanation for economies of scale is A. coordination problems. B. specialization of labor. C. increasing marginal cost. D. decreasing marginal cost.
b
When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is A. downward sloping. B. upward sloping. C. horizontal. D. vertical.
b
Which of the following explains why long-run average total cost at first decreases as output increases? A. Diseconomies of scale B. Less-efficient use of inputs C. Fixed costs becoming spread out over more units of output D. Gains from specialization of inputs
d
For a firm, marginal revenue minus marginal cost is equal to A. profit. B. average total cost. C. change in profit. D. change in average revenue.
c
Which of the following costs of publishing a book is a fixed cost? A. Author royalties of 5 percent per book B. The costs of paper and binding C. Shipping and postage expenses D. Composition, typesetting, and jacket design for the book
d
Average total cost is increasing whenever A. total cost is increasing. B. marginal cost is increasing. C. marginal cost is less than average total cost. D. marginal cost is greater than average total cost.
d
Average total cost is increasing whenever A.total cost is increasing. B.marginal cost is increasing. C.marginal cost is less than average total cost.D.marginal cost is greater than average total cost.
d
A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $4.75. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses). A. TrueB. False
false
A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost. A. TrueB. False
false
A firm's total profit equals its marginal revenue minus its marginal cost. A. TrueB. False
false
Although economists and accountants treat many costs differently, they both treat the cost of capital the same. A. TrueB. False
false
Anna borrows $5,000 from a bank and withdraws $1,000 from her personal savings to start a coffee shop. The interest rate is 5 percent for both the bank loan and her personal savings. Her opportunity cost of capital is $250. A. TrueB. False
false
In the short run, if a firm produces nothing, total costs are zero. A. TrueB. False
false
A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average total cost but greater than the firm's average variable cost. A. TrueB. False
true
A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin. A. TrueB. False
true
