MicroEconomics Test 4
Assume that you know the following cost information about Fred's widget company: Its fixed cost is $9, and its total variable cost is $6 for 1 unit; $11 for 2; $ 15 for 3; 20 for 4; and 26 for 5. Given the above information,
a)the marginal cost of providing the second unit is $5. b)the total cost of producing 4 units is $29. c)the average total cost of producing five units is $7. all of the above are true.
In the short run, ATC is NOT always higher than
MC
Which of the following must be true if the average total cost curve is declining?
Marginal cost is less than average total cost.
Assume Brad worked as a contractor for a year and had revenues of $120,000 and explicit cost of $70,000. Instead of being a contractor, he could have been paid $80,000 working for a computer company. His:
economic profit equaled -$30,000 and he would be rational to stop working as a contractor.
Firms will continue to enter a competitive industry until:
firms make $0 economic profit.
The long-run total cost schedule of a perfectly competitive firm that produces walnuts is as follows: Refer to Exhibit 12-8. A firm expanding from producing 1,000 to 2,000 pounds of walnuts in the long run is experiencing:
economies of scale.
A firm is producing 200 units of output at a total cost of $1,000. The firm's average variable cost equals $4 per unit. Total fixed cost:
equals $200.
Refer to Exhibit 12-3. Graph A exhibits a price-taking firm:
experiencing an economic loss of $80.
Average variable cost:
first tends to decrease, and then increase as output expands.
In short run equilibrium in a perfectly competitive industry whose firms are earning economic profits, a firm:
has no incentive to change its output.
Which of the following is a characteristic of perfect competition?
homogeneous products many sellers many buyers all of the above
If a particular perfectly competitive industry uses only a small fraction of the supply of any of its inputs, the long run supply curve for that industry will tend to be:
horizontal.
A firm facing a horizontal demand curve:
is characterized by all of the above.
Refer to Exhibit 12-2. When the market price equals $105, and the firm sells 675 units of output, the firm:
is earning positive economic profits.
Refer to Exhibit 12.8. Competitive firms will operate at an economic loss and will shut down in the short run if the market price
is less than $1.
A firm which owns its own equipment and is earning positive economic profits
is likely earning positive accounting profits.
If Adam's Rib Joint took in $35,000 in revenue last week and had out-of-pocket expenses of $31,500:
it is not clear whether Adam earned any economic profit last week because it depends on the magnitude of the implicit costs.
When there are diseconomies of scale in production:
long-run average total cost increases as output expands.
Refer to Exhibit 12-6. The short run ____ for this firm is represented by the area of ____.
loss; PABP1
When average total cost is decreasing as output expands:
marginal cost must be less than average total cost.
Refer to Exhibit 11-16. Point A refers to:
minimum efficient scale.
If a competitive firm is operating in short run equilibrium and then its fixed costs fall by 40 percent, it should:
not change its output.
Which of the following is not an explicit cost for the owner of a local pizza parlor?
other uses for the land that the parlor sits on
When economies of scale exist:
per unit production costs decline as output expands.
The demand curve facing a perfectly competitive firm is:
perfectly elastic.
Which of the following is a characteristic of perfect competition?
perfectly elastic.
Economies of scale:
pertain to the long run only.
In the short run, a perfectly competitive firm can earn:
positive economic profits. zero economic profits. negative economic profits. any of the above.
If a profit-maximizing firm finds that price exceeds average variable cost and marginal cost is greater than marginal revenue, it should:
reduce output, but continue producing in the short run.
A competitive firm facing a perfectly elastic demand curve can:
sell all of its output at the market price.
When would you expect economic profits in an industry to be zero?
When firms have no incentives to enter or exit.
A firm's average fixed cost curve is:
a curve that declines as output expands and approaches the X-axis when output is very large.
Diminishing marginal product of labor occurs when:
adding another unit of labor increases output, but not by as large a margin as the previous unit of labor employed.
Perfect competition is the term used to describe:
an industry in which numerous price-taking firms produce identical products.
Economic profits will take into account:
both implicit and explicit costs.
Refer to Exhibit 12-6. If P represents the market price for a price-taking firm, the best course of action in the short run for the firm is to:
continue operating because price exceeds average variable cost.
Refer to Exhibit 12-9. When the market price for lawn care services decreases from P1 to P0, the firm will most likely:
decrease its production of services.
A firm has $350 million in revenues and explicit costs of $150 million. If its owners have invested $150 million in the company at an opportunity cost of 10 percent a year, the firm's economic profit is:
$185 million.
A firm can produce 840 gallons of paint per day with 6 workers, or 910 gallons per day with 7 workers. The marginal product of the 7th worker is:
70.
Which of the following is consistent with the diminishing marginal product of studying?
Beyond some point, each added hour studying each day adds less to what you know than the previous hour's study.
If the cost of variable inputs increased, which of the following would NOT occur?
Its AFC curve would shift up.
In the short run, an expansion of output always causes in an increase in:
TC.
Given the following information about the cost function for Bob's Beautiful Bowling Balls: Which of the following is false?
The total cost of producing 5 units is 36.
Assume that a firm's total revenue is less than its total cost for the level of output it is producing. In the short run, this firm should:
There is not enough information to answer the question.
Suppose a decrease in demand causes industry Z to contract, and as a result, the prices of inputs used intensively in the industry's production process fall. We know, as a result, that industry Z is:
an increasing cost industry.
Refer to Exhibit 11-10. At output level Q, total fixed cost equals:
area ADEB.
Refer to Exhibit 11-10. At output level Q, total cost equals:
area ADQ0.
In long-run equilibrium, a perfectly competitive firms produces at the output level at which:
average total cost is minimized.
If average fixed cost and average variable cost are summed together, the result is:
average total cost.
Refer to Exhibit 12-1. In Graph A, the market demand has increased from D0 to D1, and as a result:
both the market price and the price of the price-taking firm have risen to $6.
Assume a perfectly competitive firm sells its output for $150 per unit. At its current 2,000 units of output, marginal cost is $140 and increasing, and average variable cost is $120. Assuming it wants to maximize its profits, it should:
increase output.
Refer to Exhibit 12-2. Suppose the market price equals $88 and the firm is currently producing 600 units of output. In this situation, the firm:
is maximizing profit.
If a perfectly competitive firm's marginal revenue was less than its marginal cost,
it would decrease output.
A profit-maximizing firm in a perfectly competitive market will always produce a quantity of output that:
maximizes the amount by which total revenue exceeds total cost.
Which of the following is a characteristic of perfect competition?
substantial barriers to entry differentiated products few sellers none of the above
Which of the following is true for a constant cost industry?
It uses a relatively small share of available resource inputs.
In the short run, a perfectly competitive firm will maximize profit by producing where:
MC = MR.
If a firm experiences economies of scale at all levels of output:
the slope of its long-run average total cost curve is everywhere negative.
If a perfectly competitive industry uses a large proportion of the available inputs in a resource market, then the long-run market supply curve for the industry will most likely be:
upward sloping.
What is the maximum amount of profit the perfectly competitive firm depicted below could earn in the short run?
$1,120
A firm is producing 1,000 units of output for which the average variable cost of production equals 50 cents. The firm's total fixed costs equal $700. The total cost of producing 1,000 units of output equals:
$1,200.
The table below shows how total cost varies with output in a factory producing watches: Refer to Exhibit 11-11. If the output equals four watches per week, then the average total cost of producing a watch equals:
$18.
If average total costs are $40 and average variable cost are $20 at 10 units of output and the marginal cost of the 11th unit is $30, what is the average total cost of 11 units?
$39.09
Cassie produces and sells 400 jars of homemade jelly each month for $3 each. Each month, she pays $200 for jars, $150 for ingredients, and uses her own time, with an opportunity cost of $300. Her economic profits each month are:
$550.
Refer to Exhibit 11-4. How much are average fixed costs (in dollars) at 4 units of output?
20
Refer to Exhibit 11-13. At what level of output (in thousands) is average total cost minimized?
4
A firm's average fixed cost when producing 2,000 units of output equals $10. When only 1,000 units of output are produced:
AFC must equal $20.
Which of the following is false of perfectly competitive firms?
As new firms enter an industry where sellers are earning economic profits, the result will include a reduction in the equilibrium price. In a constant-cost industry, the industry does not use inputs in sufficient quantities to affect input prices. In a constant-cost competitive industry, the long-run effect of an increase in demand is an increase in industry output but no change in the industry price. All are true.
Refer to Exhibit 12-5. The firm's short-run supply curve corresponds to which segment of the marginal cost curve in the diagram?
CDE
Refer to Exhibit 11-9. The marginal cost curve is the curve labeled:
D.
If the typical firm in a perfectly competitive market was depicted in the graph below, what would be most likely to occur?
Existing firms would be likely to exit, increasing the market price.
Which one of the following is not a characteristic of a perfectly competitive market?
Firms advertise in order to distinguish their products and increase market share.
In long-run equilibrium under perfect competition
the demand curve facing individual firms will fall to the level tangent to the minimum average total cost curve.
Assume the following cost information about Fred's widget company: Its fixed cost is $27, and its total variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5. Given this information:
the marginal cost of providing the second unit is $15. the total cost of producing 4 units is $87. the average total cost of producing five units is $21. all of the above are true.
An example of an implicit cost of production is:
the opportunity cost of space in your home that is used for a home office.
