econ 3357 exam 3
Your firm owns an old truck that is used to make local deliveries. The truck is fully depreciated and only costs $1.20 per hour to operate, but you could rent it to another firm for $15.00 per hour. What is the opportunity cost of operating this truck in your business? $15.00 per hour Less than $1.20 per hour $16.20 per hour $1.20 per hour
$15.00 per hour
Jim left his previous job as a sales manager and started his own sales consulting business. He previously earned $70,000 per year, but no he pays himself $25,000 per year while he is building the new business. What is the economic cost of the time he contributes to the new business? $25,000 per year $70,000 per year zero $45,000 per year
$45,000
refer to 8.4.2 above. when profit is maximized, the total revenue of the farmer equals: $2.170 $8.360 $996 $5.320
$8.360
consider the following statements when answering this question: 1. if a firm employs only one variable factor of production, labor, and the marginal product of labor is constant, then the marginal costs of production are constant too 2. if a firm employs only one variable factor of production, labor, and the marginal product of labor is constant, then short-run average total costs cannot rise as output rises -1 is false, 2 is true -1 is true, 2 is false -1 and 2 are false -1 and 2 are true
1 and 2 are both true
consider the following statements when answering this question: 1. the marginal cost curve intersects the average total cost and average variable cost curves at their minimum values 2. when a firm has positive fixed costs, the output level associated with minimum average variable costs is less than the output associated with minimum average total costs -1 is false, 2 is true -1 is true, 2 is false -1 and 2 are both false -1 and 2 are both true
1 and 2 are both true
use the following statements to answer this question: 1. markets may be highly (but not perfectly) competitive even if there are a few sellers 2. there is no simple indicator that tells us when markets are highly competitive -1 is true and 2 is false -1 is false and 2 is true -1 and 2 are true -1 and 2 are false
1 and 2 are true
The total cost (TC) of producing computer software diskettes (Q) is given as TC = 200 + 5Q. What is the variable cost? 200 5Q 5 5+(200/Q) None of these
5Q
refer to 7.2.1 above. at what level of output is average total cost closest to marginal cost? -2 units of output -7 units of output -8 units of output -10 units of output
8 units of output
refer to figure 8.4.2 above. when average variable cost (avc) is MINIMUM: AVC=MC profit is maximized AVC=ATC the firm suffers a loss
AVC=MC
The authors note that the goal of maximizing the market value of the firm may be more appropriate than maximizing short-run profits because A)The market value of the firm is based on long-run profits. B)Managers will not focus on increasing short-run profits at the expense of long-run profits. C)This would more closely align the interests of owners & managers. D) All of the above
all of the above
refer to figure 8.4.3 above. when the firm produces the loss-minimizing level of output, it can recover: -neither the fixed nor the variable cost in their totality -all of the fixed cost and part of the variable cost -all of the variable cost, but none of the fixed cost -all of the variable cost and part of the fixed cost
all of the variable cost and part of the fixed cost
refer to figure 8.3.1 above. at which point or range is profit maximized? -between points A and B -at point C -at point B -between points B and C
at point B
which of the following is a key assumption of a perfectly competitive market? -firms can influence market price -commodities have few sellers -it is difficult for new sellers to enter the market -each seller has a very small share of the market -none of these
each seller has a very small share of the market
the average total cost to produce 100 cookies is $0.25 per cookie. the marginal cost is constant at $0.10 for all cookies to be produced. for 100 cookies, the average total cost is: falling rising neither less than average fixed cost
falling
the perfectly competitive firm's marginal curve is: -horizontal -vertical -upward sloping -exactly the same as the marginal cost curve
horizontal
from equation (7.1) in the book, the short-run marginal cost of production MC=w/MPL. Based on this equation, which of the following statements is not true? -MC increases as the marginal product of labor declines -if the marginal product of labor is a concave curve, then the MC curve is also concave -if the marginal product of labor is a concave curve, then the MC curve is U-shaped -if the marginal product of labor is constant, then MC is constant
if the marginal product of labor is a concave curve, then the MC curve is also concave
refer to 8.3.2 above. the demand of a PRICE TAKER is illustrated: -in both panels -in panel (a) -in panel (b) -by neither curve
in panel (a)
at the profit-maximizing level of output, marginal profit -may be positive, negative, or zero -is also maximized -is zero -is positive -is increasing
is zero
when the TR and TC curves have the same slope -profit is zero -the intersect eachother -profit is negative -they are closest to eachother -they are the furthest from eachother
they are furthest from eachother
at the profit-maximizing level of output, what is the relationship between the total revenue (TR) ant total cost (TC) curves? -they must intersect, with TC cutting TR from above -they must intersect, with TC cutting TR from below -they cannot be tangent with one another -they must have the same slope -they must be tangent to eachother
they must have the same slope
which of the following costs are always increasing as output increases? -marginal cost only -total cost and variable cost -fixed cost only -total cost only -variable cost only
total cost and variable cost
the average total cost to produce 100 cookies is $0.25 per cookie. the marginal cost is constant at $0.10 for all cookies produced. refer to scenario 7.1. the total cost to produce 50 cookies is: $20 $25 $50 $60 indeterminate
$20
Consider the following statements when answering the question: 1. increases in the rate if income tax decrease the opportunity cost of attending college 2. the introduction of distance learning, which enables students to watch lectures at home, decreases the opportunity cost of attending college -1 and 2 are both true -1 is false and 2 is true -1 is true and 2 is false -1 and 2 are both false
1 and 2 are both true
consider the following statements when answering this question: 1. a firm's marginal cost curve does not depend on the level of fixed costs 2. as output increases the difference between a firm's average total cost average variable cost curves cannot rise -1 is false, and 2 is true -1 and 2 are false -1 is true and 2 is false -1 and 2 are true
1 and 2 are both true
which of the following statements demonstrates an understanding of the importance of sunk costs for decision making? 1. "even though i hate my MBA classes, i cant quit because i've spent so much money on tuition" 2. "to break into the market for soap our firm needs to spend $10M on creating an image that is unique to our new product. when deciding whether to develop the new soap, we need to take this marking cost into account" -1 only -both 1 and 2 -2 only -neither 1 or 2
2 only
The total cost (TC) of producing computer software diskettes (Q) is given as TC = 200 + 5Q. What is the marginal cost? 200 5Q 5 5+(200/Q) None of these
200
refer to 8.4.2 above. the figure describes the cost and revenue structure of a perfectly competitive coffee farm, on a per-unit basis. what is the profit maximizing number of sacks when the price of coffee in the market is $380 dollars? 6 sacks 14 sacks 22 sacks 14 or 22 sacks
22 sacks
The total cost (TC) of producing computer software diskettes (Q) is given as TC = 200 + 5Q. What is the average total cost? 500 5Q 5 5+(200/Q)
5+(200/Q)
From Example 7.2, most pizza restaurants have large fixed costs and relatively low variable costs. What does this tell us about the average variable cost (AVC) of producing pizza? AVC is relatively low AVC is relatively high AVC is increasing for all quantity levels AVC is high for low quantities but declines quickly
AVC is relatively low
because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as: P=AC AR=MR P=MC P=MR P=AVC
P=MC
prospective sunk costs: -are relevant to economic decision-making -rise as output rises -do not occur when output equals zero -are considered as investment decisions
are relevant to economic decision-making
Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift? -firm's short-run supply curve -average fixed cost curve -average total cost curve -average variable cost curve
average fixed cost curve
in the short-run, suppose average total cost is a straight line and marginal cost is positive and constant. then, we know that: -marginal cost is lass than average cost -average total cost is positive and constant -average total cost equals marginal cost -average total cost is positive and constant and average total cost equals marginal cost are correct
average total cost is positive and constant and average total cost equals marginal cost are correct
refer to figure 7.2.1 above. when 7 units are produced: -average total cost reaches its minimum -average fixed cost reaches its minimum -average variable cost reaches its minimum -marginal cost reaches its minimum
average variable cost reaches its minimum
firms often use patent rights as a: -barrier to exit -barrier to entry -way to achieve perfect competition -none of these
barrier to entry
In the short run, suppose average total cost is a straight line and marginal cost is positive and constant. Then, we know that fixed costs must: -be declining with output -be positive -equal zero -we do not have enough information to answer this question
be equal to zero
use the following two statements to answer this question: 1. the average cost curve and the average variable cost curve reach their minima at the same level of output 2. the average cost curve and the marginal cost curve reach their minima at the same level of output -1 is true and 2 is false -1 is false and 2 is true -both 1 and 2 are false -both 1 and 2 are true
both 1 and 2 are false
a price taker is: -a firm that accepts different prices from different customers -a consumer who accepts different prices from different firms -a perfectly competitive firm -a firm that cannot influence the market price -both a perfectly competitive firm and a firm that cannot influence the market price
both a perfectly competitive firm and a firm that cannot influence the market price
which of the following is an example of a homogeneous product? -gasoline -copper -personal computers -winter parkas -both gasoline and copper
both gasoline and copper
which of the following statements identifies a key difference between condominiums and cooperative housing? -co op owners have more control over who can move into their building -co op owners generally commit less time to the building governance -condos tend to be less expensive -condo owners are not responsible for maintaining the common spaces in the building
co op owners have more control over who can move into their building
an association of businesses that are jointly owned and operated by members for mutual benefit is a: -condominium -joint tendency -cooperative -corporation
cooperative
an association of businesses that are jointly owned and operated by members for mutual benefits is a -cooperation -joint tenancy -condominium -cooperative
cooperative
what do cooperative firms do if they make a profit? -cooperatives never earn a profit, so this issue does not occur -cooperatives generally return the profits to their members as a dividend -cooperatives must keep half of the profits and return the other half to their members -cooperatives must pay their profits to the federal governments as a windfall profit tax
cooperatives generally return the profits to their members as a dividend
suppose that a plant manager ignores some implicit marginal costs of production so that the perceived MC curve is below the actual MC curve. what is the likely outcome from this error? -firm produces less than optimal quantity and earns lower profits -firm produces more than optimal quantity and earns higher profits -firm produces less than optimal quality and earns higher profits -firm produces more than optimal quantity and earns lower profits
firm produces more than optimal quantity and earns lower profits
in the short run, a perfectly competitive profit maximizing firm that has not shut down: can be at any point on its ATC curve is operating on the upward sloping portion of its ATC curve is not operating on its ATC curve is operating on the downward sloping portion of its ATC curve is operating at the minimum of its ATC curve
is operating on the upward sloping portion of its ATC curve
if a competitive firm's marginal cost curve is U-shaped, then: -its short run supply curve is the downward-sloping portion of the marginal cost curve -its short run supply curve is the upward sloping portion of the marginal cost curve that lies above the short-run average total cost curve -its short run supply curve is the upward sloping portion of the marginal cost curve that lies above the short run average variable cost curve -its short run supply curve is U-shaped too -its short run supply curve is the upward sloping portion of the marginal cost curve
its short run supply curve is the upward sloping portion of the marginal cost curve that lies above the short run average variable cost curve
the total revenue graph consistent with table 8.1 is: -concave downwards -linear and vertical -linear and downward sloping -linear and horizontal -linear and upward sloping
linear and upward sloping
Incremental cost is the same concept as _____ cost -marginal -average -fixed -variable
marginal
in the short-run production process, the marginal cost is rising and the average variable is falling as output is increased. thus, -marginal cost is below average variable cost -average fixed cost is constant -marginal cost is below average fixed cost -marginal cost is above average variable cost
marginal cost is below average variable
if current output is less than the profit-maximizing output, which must be true? -average revenue is less than average cost -marginal revenue is less than marginal cost -total revenue is less than total cost -marginal revenue is greater than marginal cost -average revenue is greater than average cost
marginal revenue is greater than marginal cost
marginal profit is equal to: -marginal cost minus marginal revenue -marginal revenue minus marginal cost -marginal revenue divided by marginal cost -marginal revenue plus marginal cost
marginal revenue minus marginal cost
refer to 7.2.1 above. at what level of output are average total cost, average cost, average fixed cost and marginal cost increasing? 2 units of output 7 units of output 10 units of output none of these
none of these
in the short run, a perfectly competitive firm earning negative economic profit is: on the downward sloping portion of its ATC curve above its ATC curve on the upward sloping portion of its ATC curve at the minimum of its ATC curve
on the downward sloping portion of its ATC curve
In many rural areas, electric generation and distribution utilities were initially set up as cooperatives in which the electricity customers were member-owners. Like most cooperatives, the objective of these firms was to: -maximize profits for the member-owners -maximize total revenue that could be redistributed to the member owners -minimize the cost of production -operate at zero profit in order to provide low electricity prices for the member owners
operate at zero in order to provide low electricity prices for the member owners
marginal profit is negative when: -marginal revenue is negative -profit is negative -output exceeds the profit-maximizing level -total cost exceeds total revenue
output exceeds the profit-maximizing level
the demand curve facing a perfectly competitive is -perfectly vertical -perfectly horizontal -downward sloping and less flat that the market demand curve -downward sloping and more flat than the market demand curve -the same as the market demand curve
perfectly horizontal
several years ago, Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. this market was not perfectly competitive because the situation violated the: -price taking assumption -homogeneous product assumption -free entry assumption -price taking assumption and homogeneous product assumption are correct -price taking assumption and free entry assumption are correct
price taking assumption and free entry assumption are correct
revenue is equal to -expenditure on production or output -price time quantity minus marginal cost -price times quantity minus average cost -price times quantity minus total cost -price times quantity
price times quantity
Farmer Jones bought his farm for $75,000 in 1975. Today the farm is worth $500,000 and the interest rate is 10%. ABC Corporation has offered to buy the farm today for $500,000 and XYZ Corporation has offered to buy the farm for $530,000 one year from now. Farmer Jones could earn net profit of $15,000 (over and above all his expenses) if he farms the land this year. What should he do? -reject both offers -accept either offer as they are equivalent -farm the land for another year and sell to XYZ Corporation -Sell to ABC corporation
sell to ABC corporation
suppose a pizza restaurant has two pizza ovens that may be used to bake pizzas, so the restaurant has a maximum capacity constraint that affects the shape of the firm's short-run marginal cost curve. what happens to maximum capacity segment of this curve if the firm adds another pizza oven? shifts leftward shifts downward shifts rightward shifts upward
shifts rightward
refer to 7.2.1 above. the diagram above contains _____ cost curves. -both short-run and long-run -long run -intermediate run -short run
short-run
The amount of output that a firm decides to sell has a no effect on the market price in a competitive industry because: -the firms output is a small fraction of the entire industry's output -the firm supplies a different good than its rivals -the demand curve for the industry's output is downward sloping -the short run market price is determined solely by the firm's technology -the market price is determined (through regulation) by the government
the firms output is a small fraction of the entire industry's output
the demand curve facing a perfectly competitive firm is: -the same as its average revenue curve and its marginal revenue curve -the same as its marginal revenue curve, but not its average revenue curve -not defined in terms of average or marginal revenue curve -not the same as either its marginal revenue curve or its average revenue curve -the same as its average revenue curve, but not the same as its marginal revenue curve
the same as its average revenue curve and its marginal revenue curve
if any of the assumptions of perfect competition are violated -graphs with downward sloping demand curves cannot be used to study the firm -supply and demand analysis cannot be used to study the industry -one must use the monopoly model instead -graphs with flat demand curves cannot be used to study the firm -there may still be enough competition in the industry to make the model of perfect competition usable
there may still be enough competition in the industry to make the model of perfect competition usable
If managers do not choose to maximize profit, but pursue some other goal such as revenue maximization or growth, -they are more likely to have higher profit than if they had pursued the policy explicitly -their companies are more likely to survive in the long run -they are less likely to be replaced by stockholders -they are more likely to become takeover targets of profit maximizing firms -they are less likely to be replaced by the board of directors
they are more likely to become takeover targets of profit maximizing firms
a few sellers may behave as if they operate in a perfectly competitive market if the market demand is: -composed of many small buyers -highly inelastic -unitary elastic -very elastic
very elastic
if current output is less than the profit-maximizing output, then the next unit produced -will increase revenue more than it increases cost -will increase cost more than it increases revenue -will decrease cost -will increase revenue without increasing cost -may or may not increase profit
will increase revenue more than it increases cost