exam 2 micro

When demand increases in a perfectly competitive market, the market price: A. increases in the short run and falls in the long run. B. decreases in the short run and increases in the long run. C. increases in the short run and stays permanently higher in the long run. D. decreases in the short run and stays permanently lower in the long run.

increases in the short run and falls in the long run.

Economic profits are calculated as: A. total revenue minus explicit costs. B. total revenue minus all opportunity costs, explicit and implicit. C. total revenue minus implicit costs. D. None of these is true.

total revenue minus all opportunity costs, explicit and implicit

Profit is the: A. total revenue minus total cost B. sum of total revenue and total cost C. total cost minus total revenue D. none of these are true

total revenue minus total cost

In reality, the long-run supply curve tends to be: A. perfectly elastic. B. perfectly inelastic. C. upward sloping. D. downward sloping.

upward sloping

If a firm stops production, then its: A. variable costs drop to zero. B. fixed costs rise. C. total costs may increase or decrease. D. All of these are true.

variable costs drop to zero.

Suppose Chip's Chips produces bags of potato chips. An example of a fixed cost for this company would be: A. a potato peeling machine. B. the factory building. C. the deep fryer. D. All of these are examples of fixed costs.

All of these are examples of fixed costs.

A good that is standardized is: A. interchangeable with others in the market. B. indistinguishable to others in the market. C. identical to others in the market. D. All of these are true.

All of these are true

In the long run, firms in a perfectly competitive market produce: A. where average total costs are minimized. B. at the most efficient scale. C. where price equals marginal cost. D. All of these are true.

All of these are true

For firms that sell one product in a perfectly competitive market, marginal revenue: A. is the additional revenue gained from selling one more unit. B. is equal to average revenue. C. is equal to market price. D. All of these are true.

All of these are true.

For firms that sell one product in a perfectly competitive market, the market price: A. is taken as a constant by individual firms. B. will not be influenced by one firm's output decision. C. is equal to the average revenue of a firm. D. All of these are true.

All of these are true.

Economists assume the central goal of any business is to: A. minimize total costs. B. maximize sales. C. maximize profit. D. maximize market share.

Maximize Profit

Mika's Manicures leases a space in the local mall for $4,500 a month. For this business, this expense would be considered an: A. explicit cost of $4,500. B. implicit cost of $4,500. C. explicit cost of $0. D. This is neither an implicit or explicit cost; it is a fixed cost of $4,500.

explicit cost of $4,500.

Suppose Winston's annual salary as an accountant is $60,000, and his financial assets generate $4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his financial assets to establish a consulting business, which he runs out of his home. To run the business, he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of $150,000. What are Winston's accounting profits? A. $78,000 B. $142,000 C. $138,000 D. $150,000

$142,000

Suppose Sam's Shoe Co. makes only one kind of shoe, which sells for $50 a pair. If they sold 500,000 pairs of shoes, and had a total cost of $1,000,000, what was the company's profit? A. $24,000,000 B. $1,500,000 C. $40,000,000 D. Not enough information is given to calculate profit.

$24,000,000

Suppose Sam's Shoe Co. makes only one kind of shoe, which sells for $50 a pair. If they sold 500,000 pairs of shoes, then their total revenue would be: A. $25,000,000. B. $10,000. C. $2,500,000. D. Cannot answer this question without knowing the cost per pair.

$25,000,000

Suppose Bev's Bags makes large handbags and small handbags. They sold 70,000 large bags for $45 each and 25,000 small bags for $15 each. What was the total revenue for this company? A. $3,150,000 B. $375,000 C. $3,525,000 D. $2,850,000

$3,525,000

Suppose Winston's annual salary as an accountant is $60,000, and his financial assets generate $4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his financial assets to establish a consulting business, which he runs out of his home. To run the business, he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of $150,000. What are Winston's implicit costs? A. $64,000 B. $72,000 C. $4,000 D. $60,000

$64,000

If a firm is earning a negative economic profit, it means that: A. the resources should be invested in other business opportunities. B. more profits could be earned with the same resources in another industry. C. the opportunity cost is larger than what the firm is earning. D. All of these are true.

All of these are true.

In a perfectly competitive market, total revenue: A. measures how much revenue the firm takes in from all sales. B. is equal to price multiplied by quantity sold. C. only varies due to changes in quantity, since price is constant. D. All of these are true.

All of these are true.

The long run: A. depends on the type of firm and type of production being considered. B. is defined as however long it would take a firm to vary all of its costs. C. is longer in industries that take longer to make adjustments in input levels. D. All of these are true.

All of these are true.

Assume a company is at a point in production where marginal product is above average product. Which of the following must be true? A. Diminishing marginal product must not have set in yet. B. Marginal product must be rising. C. Average product must be rising. D. All of these are true.

Average product must be rising.

In the short run, a firm that finds itself earning a loss should compare the market price to which cost in order to determine how to minimize its losses? A. Average total costs B. Average variable costs C. Marginal costs D. Fixed costs

Average variable costs

Given the shutdown rule, what does the firm's short-run supply curve look like? A. It is the section of the ATC curve to the right of its minimum. B. It is the section of the MC that lies above the ATC curve. C. It is the section of the MC that lies above the AVC curve. D. It is the section of the AVC curve to the right of its minimum.

It is the section of the MC that lies above the AVC curve

The profit-maximizing level of output for any firm in a perfectly competitive market is to produce where: A. MC=MR B. MC>MR C. MC<MR D. MR=p*

MC=MR

Mike wants to open his own repair shop, and is considering using his savings of $30,000 to get it started. He is currently earning 3 percent interest on his savings. His friend Bob calls him and asks to borrow $30,000 to start up a bagel shop; Bob offers to pay him 5 percent interest if he loans him the money. If Mike were to use the money to open his own repair shop, how can he accurately account for his costs? A. Mike must consider the $900 in forgone interest on his savings as an implicit cost. B. Mike must consider the $1,500 in forgone interest from loaning the money to Bob as an implicit cost. C. Mike must consider the $900 in forgone interest on his savings as an explicit cost. D. Mike must consider the $1,500 in forgone interest from loaning the money to Bob as an explicit cost.

Mike must consider the $1,500 in forgone interest from loaning the money to Bob as an implicit cost.

When accounting profits are negative, economic profits could be: A. positive. B. negative. C. zero. D. All of these are possible.

Negative.

Suppose a sandwich shop currently employs four workers and the shop produces 12 sandwiches an hour. A fifth worker gets hired and the shop now produces 15 sandwiches per hour. Which of the following is true? A. The marginal product of the fifth worker is three sandwiches. B. The total product of the sandwich shop is now 27 sandwiches. C. Diminishing marginal product has set in. D. All of these are true.

The marginal product of the fifth worker is three sandwiches

Which of the following would be considered a one-time expense? A. A delivery truck B. Raw materials C. Radio ads D. A manager's salary

a delivery truck

If a firm stops production, then its: A. variable costs decrease to zero B. fixed costs stay the same C. total costs decrease D. all of these are true

all of these are true

In a perfectly competitive market, when the price is below the minimum average total cost for most firms: A. negative economic profits are being earned. B. positive accounting profits may be earned. C. higher accounting profits may be earned elsewhere. D. All of these are true.

all of these are true

Total costs: A. are fixed costs plus variable costs B. include explicit and implicit costs C. rise as output rises D. all of these are true

all of these are true

Average fixed costs: A. always trend downward as output increases. B. always trend upward as output increases. C. are a constant, regardless of quantity of output. D. are a vertical line.

always trend downward as output increases.

Economies of scale refers to returns that occur when: A. an increase in the quantity of output decreases average total cost in the long run. B. an increase in the quantity of output increases average total cost in the long run. C. average total cost does not depend on the quantity of output in the long run. D. None of these is true.

an increase in the quantity of output decreases average total cost in the long run.

Diseconomies of scale refers to returns that occur in the long run when: A. an increase in the quantity of output decreases average total cost. B. an increase in the quantity of output increases average total cost. C. average total cost does not depend on the quantity of output. D. None of these is true.

an increase in the quantity of output increases average total cost.

The principle that states the marginal product of an input decreases as the quantity of the input increases is called: A. diminishing marginal product. B. increasing rate of return. C. production function. D. total product optimization.

diminishing marginal product

When a firm is on the portion of its long run ATC curve that slopes upward, it is experiencing: A. diseconomies of scale. B. economies of scale. C. constant returns to scale. D. Any of these is possible.

diseconomies of scale.

If the demand increases in a perfectly competitive market, firms will likely: A. experience a loss due to increased competition. B. set prices artificially higher permanently. C. enter the market in hopes of capturing some profits. D. None of these is true.

enter the market in hopes of capturing some profits.

In a perfectly competitive market, when the price is greater than the minimum average total cost for most firms, some will: A. exit until the price drops to equal minimum ATC. B. enter until the price drops to equal minimum ATC. C. exit until the price increases to equal minimum ATC. D. enter until the price increases to equal minimum ATC.

enter until the price drops to equal minimum ATC.

When marginal product is __________ average product, then average product must be ______________. A. is greater than; increasing B. is greater than; decreasing C. is less than; increasing D. Any of these is possible.

is greater than; increasing

If a firm in a perfectly competitive market is producing at a level of output where marginal costs exceed marginal revenue: A. its profits must be negative. B. its profits are maximized. C. its profits will increase if they produce less. D. None of these is true.

its profits will increase if they produce less.

As long as market price remains above the average total cost, and the firm chooses the profit-maximizing level of output, it will: A. make profits. B. Any of these is possible. C. earn a loss. D. earn zero profits.

make profits.

If the demand increases in a perfectly competitive market, in the short run the supply curve will: A. increase. B. decrease. C. not change. D. either increase or decrease.

not change

In theory, the long-run supply curve for perfectly competitive market firms who are identical is: A. perfectly elastic. B. perfectly inelastic. C. upward sloping. D. downward sloping.

perfectly elastic

A firm in a perfectly competitive market can maximize its profits by: A. producing the level of output where marginal cost equals marginal revenue. B. producing any level below where marginal cost equals marginal revenue. C. producing any level beyond where marginal cost equals marginal revenue. D. producing at capacity.

producing the level of output where marginal cost equals marginal revenue.

When demand increases in a perfectly competitive market, in the short run _______________, and in the long run _______________. A. quantity supplied increases; supply increases B. quantity supplied increases; supply decreases C. quantity supplied decreases; supply decreases D. quantity supplied decreases; supply increases

quantity supplied increases; supply increases

Implicit costs are costs that: A. require a firm to spend money. B. represent forgone opportunities. C. do not depend on the quantity of output produced. D. depend on the quantity of output produced.

represent forgone opportunities.

The long-run relationship between the quantity of output and the average total cost is: A. marginal cost. B. the production function. C. returns to scale. D. profit maximizing level of output.

returns to scale

As the equilibrium price falls in a perfectly competitive market, so do firms': A. revenue and so do their profits. B. total costs and so do their profits. C. revenue, and their profits rise. D. total costs, and their profits rise.

revenue and so do their profits.

If a perfectly competitive firm faces a market price of $3 per unit, and it decides to produce 30,000 units, the market price will likely: A. increase. B. decrease. C. stay the same. D. Cannot answer without more information.

stay the same

Marginal cost is: A. the additional cost a firm will incur by producing one additional unit of output. B. the additional output a firm will get by employing one additional unit of input. C. the total cost a firm will incur by producing a given level of output. D. the costs that sit on the margin, that do not change regardless of the level of output.

the additional cost a firm will incur by producing one additional unit of output.

Total cost can be defined as: A. the amount that a firm spends on all inputs that go into producing a good or service. B. the amount that a firm receives from the sale of goods and services. C. the amount that an individual spends on all normal goods and services within a specified period of time. D. None of these is correct.

the amount that a firm spends on all inputs that go into producing a good or service.

A college student is thinking about running an ice-cream truck over the summer. Which of the following would likely be a one-time expense of the business? A. The cost of ice cream cones B. The cost of the truck C. The cost of the gasoline D. All of these are one-time expenses.

the cost of the truck

When the slope of the total production curve steepens, it means: A. the marginal product must be increasing. B. the marginal product must be decreasing. C. diminishing marginal product must hold. D. None of these is true.

the marginal product must be increasing

Tina withdraws $20,000 from her money market account to start up her own house cleaning business. The account earns 3 percent interest. In order to properly account for all costs of her business, Tina must not forget: A. the opportunity cost of $2,600. B. the opportunity cost of $600. C. the fixed cost of $20,600. D. the fixed cost of $20,600 and the opportunity cost of $600.

the opportunity cost of $600

For firms that sell one product in a perfectly competitive market, average revenue: A. will increase if marginal revenue is greater than it. B. will decrease if marginal revenue is greater than it. C. will always be the same as marginal revenue. D. None of these is true.

will always be the same as marginal revenue