econ unit three test
If a typical firm in a perfectly competitive market earns positive economic profit in the short run, what will most likely happen in the long run?
Firms will enter the market and cause the price to fall.
A perfectly competitive firm operates with a fixed amount of capital that costs $1,000 per day. Labor is the only variable input. The firm hires labor in a perfectly competitive labor market at $100 per day per worker. The table below shows the firm's production function.
24
Bruce is a talented writer and graphic artist who enjoys both types of work equally. Instead of earning $45,000 as a writer, Bruce now earns $25,000 in accounting profits as a graphic artist using the same computer equipment he would have used as a writer. What is Bruce's economic profit from choosing to work as a graphic artist?
-$20,000
A firm is producing 100 units of output at a total cost of $400. The firm's average variable cost is $3 per unit. What is the firm's total fixed cost?
$100
According to the cost schedule in the table above, the firm's total fixed cost is
$100
Based on the cost and output data in the table below, a perfectly competitive firm will shut down if price falls below:
$15
Given the information above, the average variable cost of 25 units of output is
$2
The average fixed cost of producing four units of output is equal to
$30
The marginal revenue of the third unit of output is
$8
At a firm's current output level, average fixed cost is $10, average variable cost is $30, average total cost is $40, and marginal cost is $55. Which of the following must be true?
Average fixed cost is decreasing, and both average variable cost and average total cost are increasing.
The graph above shows per unit cost information for firm X. At what quantity of output do diminishing returns begin for firm X?
Q2
A firm has only five possible factory (plant) sizes to choose from, represented by the short-run average total cost (SRATC) curves on the long-run average total cost (LRATC) curve shown on the graph below. The firm's minimum efficient scale occurs on:
SRATC3
The graph above shows the cost curves for May's Fruit Farm, where MC is marginal cost, ATC is average total cost, and AVC is average variable cost. May's short-run supply curve includes which of the following points?
STV
The characteristic that causes firms in a perfectly competitive industry to earn zero economic profits in the long run is
there are no barriers to entry or exit
In the short run, the firm will
continue to produce as long as the price is greater than P2
If there is only one variable input, diminishing marginal returns first occur with the production of which unit of output?
5th
If the product price is $85, how many units of output must the firm produce in order to maximize profits?
6
The table above shows a firm's short-run production function using labor as the only variable input. The marginal product of the third worker is
7 units
A competitive profit-maximizing firm is currently producing at an output level at which the marginal revenue is equal to marginal cost. Which of the following changes will NOT affect the profit-maximizing quantity?
An increase in fixed costs
Assume a decreasing-cost perfectly competitive industry. Which of the following statements is true?
As industry output contracts, each firm's long-run average total cost curve shifts upward.
If a firm's production function exhibits diminishing marginal product of the variable input in the short run, which of the following about the firm's short-run marginal cost (MC) curve must be true?
As output increases, the MC curve slopes upward.
The table below shows a competitive firm's total variable cost (TVC) and total fixed cost (TFC) at various units of output. When output is 3 units, which of the following is correct?
Average Variable Cost: 5 Marginal Cost: 7
If an entrepreneur has earned enough total revenue to cover accounting costs, but economic losses are being incurred. What must be true?
Her accounting profits are less than her implicit costs.
The graph above shows the short-run cost curves of a firm in a perfectly competitive market. which of the following are true at the firm's profit maximizing output level?
I and IV only I) price exceeds average total cost IV) new firms are likely to enter the market in the long run
Which of the following statements regarding accounting profits, opportunity costs, and economic profits is true?
If accounting profits are less than opportunity costs, there will be economic losses.
Which of the following is true for a firm that uses labor as a variable input and capital as a fixed input in the short run?
If the average product of labor is falling, the marginal product of labor must be less than the average product of labor.
At a perfectly competitive firm's current output level, average total cost is $15, average variable cost is $10, and marginal cost is $8 and increasing. If the product price is $15, what should this firm do to maximize profits?
Increase the quantity of output produced.
Which of the following is true when total product is at its maximum?
Marginal product is equal to zero.
If individual firms in a perfectly competitive market are earning positive economic profits, the number of firms and the price of the product in the market will most likely change in which of the following ways in the long run?
Number of Firms: Increase Price: Decrease
How many units of output should a firm with the cost and demand curves shown above produce to maximize profit?
Q3
The graph shows a firm in a perfectly competitive industry. Assume all the firms in the industry have identical costs. Given the price P4, what is a firm's profit-maximizing quantity of output?
Q3
A firm has only five possible factory (plant) sizes to choose from, represented by the short-run average total cost (SRATC) curves on the long-run average total cost (LRATC) curve shown on the graph below. Which of the following ranges of output illustrates diseconomies of scale?
Q3 to Q5
Which of the following best explains why a firm's short-run marginal cost curve shifts down when it purchases new, more efficient equipment and experiences an increase in its total cost?
The equipment purchase is a fixed cost, and the new equipment will cause a reduction in the cost of producing each additional unit.
At the current quantity that a firm is selling, the firm has marginal revenue of $750 and marginal cost of $800. Which of the following is true?
The firm's profits would increase if the firm decreased the quantity sold.
The graph above shows the cost curves for a competitive firm that produces 20 units of output. What are the total cost and the total fixed cost of producing 20 units of output?
Total Cost: $120 Total Fixed Cost: $20
A profit-maximizing firm is currently producing a quantity at which price is less than average variable cost. To maximize profit, the firm will do which of the following in the short run and the long run?
Shut down in the short run and exit the market in the long run.
The table below is partially filled in with the different types of costs for a firm. Based on the information in the table, what is the marginal cost of producing the second unit?
$50
Given the production schedule above, what is the maximum number of workers the firm can hire before the effects of diminishing marginal returns set in?
2
The firm's profit maximizing quantity is
5
Which of the following must be true if at the tenth unit of output, marginal cost (MC) is $130 and average total cost (ATC) is $150 ?
ATC of producing the ninth unit is higher than $150.
When the marginal cost curve lies below the average total cost curve, it is true that as output increases
average total cost is decreasing
The table below shows the long-run total cost function of a firm. The firm's cost function exhibits
constant returns to scale
The graph shows a firm in a perfectly competitive industry. Assume all the firms in the industry have identical costs. Firms will have no incentive to exit or enter this market if the price in this market is
equal to average total cost
Habib withdrew $100,000 from his bank account paying 5% interest to purchase equipment for his construction company. If Habib earns an accounting profit of $10,000 and he has no other opportunity costs, his economic profit will be equal to
$5000
Assume that total fixed costs are $46 that the average product of labor is 5 units when 10 units of output are produced, and that the wage rate is $12. If labor is the only variable input, what is the average total cost of producing 10 units of output
$7
Instead of being employed at a printing company at a salary of $25,000 per year, Sally starts her own printing firm. rather than renting a building that she owns to someone else for $10,000 per year, she uses it as the location for her company. her costs for workers, materials, advertising, and energy during her first year are $125,000. if the total revenue from her printing company is $155,000, her total economic profit is
-$5000
Which of the following is true about economies of scale and increasing returns to scale?
Economies of scale refers to the relationship between long-run average total cost and the size of the firm. Increasing returns to scale refers to the relationship between inputs and output.
In a comparison of a profit-maximizing perfectly competitive firm's short-run equilibrium to its long-run equilibrium, which of the following is true?
Price equals average total cost in the long run, but not necessarily in the short run.
A perfectly competitive firm's short-run supply curve is the portion of the marginal cost curve that is
above the average variable cost curve
A farmer grows wheat using two inputs: labor and land whose prices are constant. If she doubles her inputs, she finds that the quantity of wheat produced more than doubles. Therefore, it must be true that in this output range her long-run average total cost curve is
downward sloping
The firm's short-run supply curve is which of the following?
The MC curve above P2
Kieran owns and operates his own bike shop. In the past week, a competitor offered to buy Kieran's bike shop for $100,000 and hire Kieran for $50,000 per year. Assume the annual interest rate is 6 percent, and Kieran's accounting profit from his bike shop is $60,000. Kieran's economic profit is
$4000
A graph shows quantity of output produced on the horizontal axis and shows total variable cost and total cost on the vertical axis. Which of the following is true about the vertical distance between total variable cost and total cost as output increases?
It remains constant
Given a short-run production function, which of the following is true when total product is increasing at a decreasing rate?
Marginal product must be positive and decreasing.
if the firm produces Q1 units of output with two inputs, the firm will be experiencing which of the following in the short run and in the long run?
Short run: diminishing marginal returns Long run- economies of scale
Assume a perfectly competitive firm is currently producing 100 units of output. Its marginal cost is $6 and rising at that output quantity. Its average variable cost is $7 and its average fixed cost is $3. If the product's price is $6, which of the following will the firm do in the short run to maximize its profit?
Shut down
Currently, XYZ Corporation can produce 50 units of output using 20 workers and 8 units of capital. Which of the following changes in the number of workers, units of capital, and quantity of output are consistent with constant returns to scale?
Workers: 10 Capital: 4 Output: 25
Economies of scale can be illustrated by
a decreasing long-run average total cost curve as a firm produces more output
At a firm's current rate of output, the marginal cost is $65, the average variable cost is $35, the average fixed cost is $30, and the product price is $65. Which of the following statements is true for the firm
economic profits are zero because price equals average total cost
Which of the following is ignored when calculating accounting profit?
implicit costs
The graph above shows the short-run cost curves for a perfectly competitive firm. Assume that the market price is P0 and the firm is producing at quantity Q0. To maximize profit, the firm should
increase production to quantity Q2, where price is equal to marginal cost
The following two questions refer to the cost and revenue conditions of a monopolistically competitive firm shown in the graph below. The firm's profit-maximizing output in the short run is
zero, because P<AVC
Jamal quits a job that was paying him $30,000 per year and decides to start his own business. He runs his business out of his house in a room he had been renting to his colleague for $12,000 a year. Jamal withdraws the $20,000 in his savings account that had been earning him a 10 percent annual interest to purchase computers and related accessories and equipment for the business. During the first year of operation, Jamal's business incurred $30,000 in explicit costs and generated $60,000 in total sales. Jamal's economic profit is
-$14,000
A profit-maximizing, perfectly competitive firm is currently in long-run equilibrium. It is earning $15,000 of total revenue from a sale of 1,000 units. Its total fixed cost of production is $2,500. Which of the following can correctly be inferred from the information provided?
Its marginal cost is $15.00, and its average variable cost is $12.50.
JC Pizzeria has a year remaining on an unbreakable lease on its building, requiring a payment of $20,000 a year. If JC operates over the next year, it estimates that its revenue will be $200,000 and that its expenses, in addition to the lease, will be $190,000. Which of the following statements is true?
JC should operate, since its loss is less than its fixed costs
At the current output level, a firm finds that it has the potential to increase its profit by expanding output. If P = price, MR = marginal revenue, and MC = marginal cost, which of the following must hold at the current output for this firm?
MR > MC
