Econ Final 12/13/20

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 $6, and is earning $240 economic profit in the short run. What is the current market price?

$0 $6 $10 $12//

Trevor's Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor's Tire Company's total profits are

$7,500. $25,000. $32,500. $67,500. Answer: $7500

Which of the following is an example of an implicit cost? (I) the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm (ii)interest paid on the firm's debt (iii)rent paid by the firm to lease office space

(ii) and (iii) only (i) and (iii) only (i) only (iii) only Answer: C

Which of the following statements is correct? Monopolies are socially inefficient because they (i)charge a price above marginal cost. (ii)produce too little output. (iii)earn profits at the expense of consumers. (iv)maximize the market's total surplus.

(iii) only (iii) and (iv) only (i) and (ii) only // (i), (ii), (iii), and (iv)

Which of the following is not an example of a barrier to entry?

-A soybean farmer is the first in her county to use a new brand of fertilizer.// -Microsoft obtains a copyright for its Windows operating system. -A pharmaceutical company obtains a patent for a new medication to treat migraine headaches. -A taxi cab driver in New York City obtains a license to legally provide transportation in New York City.

Round-trip airline tickets are usually cheaper if you stay over a Saturday night before you fly back. What is the reason for this price discrepancy?

-Airlines are practicing imperfect price discrimination to raise their profits. -Airlines charge a different rate based on the different nature of peoples' travel needs. -Airlines are attempting to charge people based on their willingness to pay. -All of the above are correct.//

Why does a firm in a competitive industry charge the market price?

-If a firm charges less than the market price, it loses potential revenue. -If a firm charges more than the market price, it loses all its customers to other firms. -The firm can sell as many units of output as it wants to at the market price. -All of the above are correct.//

Drug companies are allowed to be monopolists in the drugs they discover in order to

-allow drug companies to charge a price that is equal to their marginal cost. -discourage new firms from entering the drug market. -encourage research.// -allow the government to earn patent revenue.

Total cost is the

-amount a firm receives for the sale of its output. -fixed cost less variable cost. -market value of the inputs a firm uses in production. -quantity of output minus the quantity of inputs used to make a good. Answer: C

Which of the following can eliminate the inefficiency inherent in monopoly pricing?

-arbitrage -cost-plus pricing -price discrimination// -regulations that force monopolies to reduce their levels of output

When a firm is experiencing economies of scale, long-run

-average total cost is minimized. -average total cost is greater than long-run marginal cost. -average total cost is less than long-run marginal cost. -marginal cost is minimized. Answer: B

Price discrimination is the business practice of

-bundling related products to increase total sales. -selling the same good at different prices to different customers.// -pricing above marginal cost. -hiring marketing experts to increase consumers' brand loyalty.

Diminishing marginal product suggests that the marginal

-cost of an extra worker is unchanged. -cost of an extra worker is less than the previous worker's marginal cost. -product of an extra worker is less than the previous worker's marginal product. -product of an extra worker is greater than the previous worker's marginal product. Answer: C

With perfect price discrimination the monopoly

-eliminates all price discrimination by charging each customer the same price. -charges each customer an amount equal to the monopolist's marginal cost of production. -eliminates deadweight loss.// -eliminates profits and increases consumer surplus.

When firms in a competitive market have different costs, it is likely that

-free entry and exit in the market will be violated. -the market will no longer be considered competitive. -long-run market supply will be downward sloping. -some firms will earn positive economic profits in the long run.//

In the short run, a firm operating in a competitive industry will shut down if price is

-less than average total cost. -less than average variable cost.// -greater than average variable cost but less than average total cost. -greater than marginal cost.

Economies of scale occur when a firm's

-marginal costs are constant as output increases. -long-run average total costs are decreasing as output increases. -long-run average total costs are increasing as output increases. -marginal costs are equal to average total costs for all levels of output. Answer: B

Explicit costs

-require an outlay of money by the firm. -include all of the firm's opportunity costs. -include the value of the business owner's time. -Both b and c are correct. Answer: A

Figure 13-2. (look at paper question 13)

.Refer to Figure 13-2. If the figure represented production at a cookie factory, the factory would be experiencing -diminishing marginal product of workers. -diminishing marginal cost of cookie production. -decreasing cost of cookie production. -decreasing output of cookies. Answer: A

In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market? (look at paper)

200 units 300 units// 400 units 500 units

Scenario 13-7 Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each.

Refer to Scenario 13-7. What are Wanda's explicit costs per glass? $0.18 $0.10 $0.08 $0.02 Answer: C

Scenario 13-7 Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each.

Refer to Scenario 13-7. What are Wanda's total accounting profits? $150 $126 $96 $24 Answer: B

Scenario 13-8 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.

Refer to Scenario 13-8. According to Ellie's accountant, which of the following revenue totals will yield her business $50,000 in profits? $55,200 $105,200 $132,500 $185,700 Answer: B

Scenario 13-9 Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each.

Refer to Scenario 13-9. An economist would calculate the total profit for one photo frame to be $10. $15. $20. $25. Answer: B

Scenario 15-2 Consider a local, privately-owned electrical cooperative named Minny County Megawatts (MCM, LLC). MCM has just completed a natural-gas-burning electrical power plant in the Midwest. Currently, MCM can meet the electricity needs of all residents in the county. In fact, its capacity far exceeds the needs of the county. After just a few years of operation, the shareholders of MCM experienced incredible rates of return on their investment due to the profitability of the corporation.

Refer to Scenario 15-2. MCM will continue to be a monopolist in the electricity industry only if -population growth leads to an increased demand for electricity. -there are no new entrants to the market.// -the price of natural gas decreases. -All of the above are correct.

Scenario 15-4 Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The monopolist's marginal revenue curve can be expressed as MR=90-2Q. The monopolist has constant marginal costs and average total costs of $10.

Refer to Scenario 15-4. The profit-maximizing monopolist will produce an output level of 80 units. 40 units.// 20 units. 10 units.

Table 13-1 (Look at paper)

Refer to Table 13-1. What is total output when 1 worker is hired? 30 40 120 160 Answer: A

Table 13-12 Betty's Bakery (Look at paper)

Refer to Table 13-12. What is the fixed cost of production at Betty's Bakery? $12 $20 $25 $51 Answer: C

Table 13-12 Betty's Bakery (Look at paper #18)

Refer to Table 13-12. What is the marginal cost of the 2nd cake at Betty's Bakery? $14 $15 $28 $34 Answer: B

Table 13-13 (Look at paper)

Refer to Table 13-13. What is variable cost when output equals 30 units? $4 $40 $90 $130 Answer: C

Table 13-7 The Flying Elvis Copter Rides (Look at paper)

Refer to Table 13-7. What is the value of B? $25 $50 $100 $200 Answer: C

Table 13-8 (Look at paper)

Refer to Table 13-8. What is the average fixed cost of producing 5 units of output? $4 $5 $40 $44 Answer: A

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: (look at paper)

Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn? $2 $4 $6// $8

Table 14-12 Bill's Birdhouses

Refer to Table 14-12. What is the total revenue from selling 7 units? $80 $382 $540 $560//

Table 14-7 Suppose that a firm in a competitive market faces the following revenues and costs: (look at paper)

Refer to Table 14-7. If the firm is maximizing profit, how much profit is it earning? $0 $1 $10 There is insufficient data to determine the firm's profit.//

Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: (look at paper)

Refer to Table 14-9. The maximum profit available to the firm is $2. $3. $4. $5.//

Table 15-18 Tommy's Tie Company, a monopolist, has the following cost and revenue information. Assume that Tommy's is able to engage in perfect price discrimination. (Look at paper)

Refer to Table 15-18. If the monopolist can engage in perfect price discrimination, what is the total revenue when 7 ties are sold? $650 $700 $910// $1080

Table 15-4 A monopolist faces the following demand curve: (look at paper)

Refer to Table 15-4. If the monopolist produces 5 units, what is its marginal revenue? $100 $37.5 $15// $2.50

Table 15-9 Consider the following demand and cost information for a monopoly. (check paper)

Refer to Table 15-9. What price should the monopoly charge to maximize profit? $16 $20 $24// $28

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

average revenue exceeds marginal cost. the firm is earning a positive profit. decreasing output would increase the firm's profit.// All of the above are correct.

Whenever marginal cost is greater than average total cost,

average total cost is rising. marginal cost is falling. average total cost is falling. Both b and c are correct. Answer: A

Who is a price taker in a competitive market?

buyers only sellers only both buyers and sellers// neither buyers nor sellers

When firms are said to be price takers, it implies that if a firm raises its price,

buyers will go elsewhere.// buyers will pay the higher price in the short run. competitors will also raise their prices. firms in the industry will exercise market power.

In his book, An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith described a visit he made to a

car factory. pin factory. washing machine factory. farm. Answer: B

When a monopolist is able to sell its product at different prices, it is engaging in

distribution pricing. quality-adjusted pricing. arbitrage. price discrimination.//

When deciding what price to charge consumers, the monopolist may choose to charge them different prices based on the customers'

geographical location. age. income. All of the above are correct.//

When a firm's average total cost curve continually declines, the firm is a

government-created monopoly. natural monopoly.// revenue monopoly. All of the above are correct.

A certain competitive firm sells its output for $20 per unit. The 50th unit of output that the firm produces has a marginal cost of $22. Production of the 50th unit of output does not necessarily

increase the firm's total revenue by $20. increase the firm's total cost by $22. decrease the firm's profit by $2. increase the firm's average variable cost by $0.44.//

When the marginal product of an input declines as the quantity of that input increases, the production function exhibits

increasing marginal product. diminishing marginal product. diminishing total product. Both b and c are correct. Answer: B

Marginal cost increases as the quantity of output increases. This reflects the property of

increasing total cost. diminishing total cost. increasing marginal product. diminishing marginal product. Answer: D

Economies of scale occur when

long-run average total costs rise as output increases. long-run average total costs fall as output increases. average fixed costs are falling. average fixed costs are constant. Answer: B

A monopoly chooses to supply the market with a quantity of a product that is determined by the intersection of the

marginal cost and demand curves. average total cost and demand curves. marginal revenue and average total cost curves. marginal revenue and marginal cost curves.//

In which of the following markets is economic profit driven to zero in the long run?

oligopoly monopoly monopolistic competition// cartels

During the holiday season, high-end retailers frequently place a high price on merchandise on weekends and discount the price during the week. They do this because they believe that two groups of customers exist: shoppers with little free time and bargain hunters. Bargain hunters have time to shop around and frequently shop during the week. What do economists call this price strategy used by high-end retailers?

oligopoly price discrimination// compensating differential in-kind transfers

For a monopoly firm, which of the following equalities is always true?

price = marginal revenue price = average revenue// price = total revenue marginal revenue = marginal cost

The amount of money that a firm pays to buy inputs is called

total cost. variable cost. marginal cost. fixed cost. Answer: Total cost

A firm in a competitive market has the following cost structure: (look at paper)

If the market price is $4, this firm will -produce 2 units in the short run and exit in the long run. -produce 3 units in the short run and exit in the long run.// -produce 4 units in the short run and exit in the long run. -shut down in the short run and exit in the long run.

Which of the following market structures is considered a differentiated products market?

Perfect competition Monopolistic competition// Monopoly Both a and b are differentiated products markets.

If the monopolist's linear demand curve intersects the quantity axis at Q = 30, then the monopolist's marginal revenue will be equal to zero at

Q = 10. Q = 15.// Q = 20. Q = 30.

Figure 13-2 (Look at paper)

Refer to Figure 13-2. As the number of workers increases, -total output increases but at a decreasing rate. -marginal product increases but at a decreasing rate. -marginal product increases at an increasing rate. -total output decreases. Answer: A

Figure 13-8 (look at paper)

Refer to Figure 13-8. Quantity C represents the output level where the firm -maximizes profits. -minimizes total costs. -produces at the efficient scale. -minimizes marginal costs. Answer: C

Figure 13-9 The figure below depicts average total cost functions for a firm that produces automobiles. (Look at paper)

Refer to Figure 13-9. The firm experiences constant returns to scale at which output levels? -output levels less than M -output levels between M and N -output levels greater than N -All of the above are correct as long as the firm is operating in the long run. Answer: B

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: (Look at paper)

Refer to Figure 14-1. The firm will earn a negative economic profit but remain in business in the short run if the market price is above $6.30 but less than $8. above $6.30. less than $6.30 but more than $4.50.// less than $4.50.

Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: (Look at sheet)

Refer to Figure 14-3. If the market price is $10, what is the firm's short-run economic profit? $9 $15// $30 $50

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: (Look at #45)

Refer to Figure 14-6. Firms will shut down in the short run if the market price exceeds P3. is less than P1.// is greater than P1 but less than P3. exceeds P2.

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: (Look at paper)

Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total costs can be represented by the area P2 ´ Q2. can be represented by the area P3 ´ Q2.// can be represented by the area (P3-P2) ´ Q3. are zero.

Figure 15-3 (Look at paper)

Refer to Figure 15-3. If the monopoly firm is currently producing Q3 units of output, then a decrease in output will necessarily cause profit to -remain unchanged. -decrease. -increase as long as the new level of output is at least Q2.// -increase as long as the new level of output is at least Q1.

Figure 15-4 (check paper)

Refer to Figure 15-4. Profit on a typical unit sold for a profit-maximizing monopoly would equal P5-P0. P4-P2. P4-P1.// P4-P3.

Scenario 13-12 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.

Refer to Scenario 13-12. Farmer Brown's total-cost curve is -increasing at an increasing rate. -increasing at a decreasing rate. -increasing at a constant rate. -decreasing Answer: A

Scenario 13-14 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.

Refer to Scenario 13-14. Farmer Brown's marginal-cost curve is -increasing. -decreasing. -constant. -U-shaped. Answer: A

Scenario 13-4 Suppose that Abdul opens a coffee shop. He receives a loan from a bank for $100,000. He withdraws $50,000 from his personal savings account. The interest rate on the loan is 8%, and the interest rate on his savings account is 2%.

Refer to Scenario 13-4. Abdul's explicit cost of capital is $8,000. $4,000. $2,000. $1,000. Answer: A