question
Total revenue minus explicit and implicit costs is called
a. accounting profit
b. economic profit
c. average total cost
d. fixed expenses
a. accounting profit
b. economic profit
c. average total cost
d. fixed expenses
answer
b. economic profit
question
The marginal product of an input in the production process is the increase in
a. total revenue obtained from an additional unit of that input.
b. profit obtained from an additional unit of that input.
c. total revenue obtained from an additional unit of that input.
d. quantity of output obtained from an additional unit of that input.
a. total revenue obtained from an additional unit of that input.
b. profit obtained from an additional unit of that input.
c. total revenue obtained from an additional unit of that input.
d. quantity of output obtained from an additional unit of that input.
answer
d. quantity of output obtained from an additional unit of that input.
question
Average total cost is equal to
a. output/total cost.
b. total cost - total quantity of output.
c. average variable cost + total fixed cost.
d. total cost/output.
a. output/total cost.
b. total cost - total quantity of output.
c. average variable cost + total fixed cost.
d. total cost/output.
answer
d. total cost/output.
question
A certain firm produces and sells staplers. Last year, it produced 7,000 staplers and sold each stapler for $6. In producing the 7,000 staplers, it incurred variable costs of $28,000 and a total cost of $45,000.
In producing the 7,000 staplers, the firm's average variable cost was
a. $2.
b. $4.
c. $6.
d. $8.
In producing the 7,000 staplers, the firm's average variable cost was
a. $2.
b. $4.
c. $6.
d. $8.
answer
b. $4
question
In setting the production level, a firm's cost curves
a. by themselves do not tell us what decisions the firm will make.
b. dictate what decisions the firm will make.
c. have no bearing on what decisions the firm will make.
d. None of the above is correct.
a. by themselves do not tell us what decisions the firm will make.
b. dictate what decisions the firm will make.
c. have no bearing on what decisions the firm will make.
d. None of the above is correct.
answer
a. by themselves do not tell us what decisions the firm will make.
question
Some reasons that firms may experience diseconomies of scale include that
a. the firm is too small to take advantage of specialization.
b. large management structures may be bureaucratic and inefficient.
c. if there are too many employees, the work place becomes crowded and people become less productive.
d. average fixed costs begin to rise again.
a. the firm is too small to take advantage of specialization.
b. large management structures may be bureaucratic and inefficient.
c. if there are too many employees, the work place becomes crowded and people become less productive.
d. average fixed costs begin to rise again.
answer
b. large management structures may be bureaucratic and inefficient.
question
According to the law of supply,
a. firms' production levels are not correlated with the price of a good.
b. the supply curve will slope downward when demand decreases.
c. firms are willing to produce a greater quantity of a good when the price of the good is higher.
d. the supply curve identifies the points where the firm minimizes its marginal costs.
a. firms' production levels are not correlated with the price of a good.
b. the supply curve will slope downward when demand decreases.
c. firms are willing to produce a greater quantity of a good when the price of the good is higher.
d. the supply curve identifies the points where the firm minimizes its marginal costs.
answer
c. firms are willing to produce a greater quantity of a good when the price of the good is higher.
question
XYZ corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of
production for each unit of output produced was $100. Each of the 275 units sold was sold for a price of $95.
Total profit for the XYZ corporation would be
a. -$3,875.
b. $26,125.
c. $28,500.
d. $30,000.
production for each unit of output produced was $100. Each of the 275 units sold was sold for a price of $95.
Total profit for the XYZ corporation would be
a. -$3,875.
b. $26,125.
c. $28,500.
d. $30,000.
answer
a. -$3,875.
question
Economic profit is equal to
a. total revenue minus the explicit cost of producing goods and services.
b. total revenue minus the opportunity cost of producing goods and services.
c. total revenue minus the accounting cost of producing goods and services.
d. average revenue minus the average cost of producing the last unit of a good or service.
a. total revenue minus the explicit cost of producing goods and services.
b. total revenue minus the opportunity cost of producing goods and services.
c. total revenue minus the accounting cost of producing goods and services.
d. average revenue minus the average cost of producing the last unit of a good or service.
answer
b. total revenue minus the opportunity cost of producing goods and services.
question
Economists normally assume that the goal of a firm is to
a. maximize its total revenue.
b. maximize its profit.
c. minimize its explicit costs.
d. minimize its total cost.
a. maximize its total revenue.
b. maximize its profit.
c. minimize its explicit costs.
d. minimize its total cost.
answer
b. maximize its profit.
question
According to the law of supply,
a. the supply curve identifies the points where the firm minimizes its marginal costs.
b. firms are willing produce a greater quantity of a good when the price of the good is higher.
c. the supply curve will slope downward when demand decreases.
d. firms' production levels are not correlated with the price of a good.
a. the supply curve identifies the points where the firm minimizes its marginal costs.
b. firms are willing produce a greater quantity of a good when the price of the good is higher.
c. the supply curve will slope downward when demand decreases.
d. firms' production levels are not correlated with the price of a good.
answer
b. firms are willing produce a greater quantity of a good when the price of the good is higher.
question
Changes in the output of a perfectly competitive firm, without any change in the price of the product, will
change the firm's
a. total revenue.
b. marginal revenue.
c. average revenue.
d. All of the above are correct.
change the firm's
a. total revenue.
b. marginal revenue.
c. average revenue.
d. All of the above are correct.
answer
a. total revenue.
question
For a competitive firm,
a. Total revenue = Average revenue.
b. Total revenue = Marginal revenue.
c. Total cost = Marginal revenue.
d. Average revenue = Marginal revenue.
a. Total revenue = Average revenue.
b. Total revenue = Marginal revenue.
c. Total cost = Marginal revenue.
d. Average revenue = Marginal revenue.
answer
d. Average revenue = Marginal revenue.
question
One of the defining characteristics of a perfectly competitive market is
a. a small number of sellers.
b. a large number of buyers and a small number of sellers.
c. a standardized product.
d. significant advertising by firms to promote their products.
a. a small number of sellers.
b. a large number of buyers and a small number of sellers.
c. a standardized product.
d. significant advertising by firms to promote their products.
answer
c. a standardized product.
question
Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for
rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average
variable cost, the firm
a. will experience losses but will continue to produce rubber bands, at least in the short run.
b. will shut down.
c. will be earning both economic and accounting profits.
d. should raise the price of its product.
rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average
variable cost, the firm
a. will experience losses but will continue to produce rubber bands, at least in the short run.
b. will shut down.
c. will be earning both economic and accounting profits.
d. should raise the price of its product.
answer
a. will experience losses but will continue to produce rubber bands, at least in the short run.
question
A competitive firm's short-run supply curve is part of which of the following curves?
a. Marginal revenue
b. Average variable cost
c. Average total cost
d. Marginal cost
a. Marginal revenue
b. Average variable cost
c. Average total cost
d. Marginal cost
answer
d. Marginal cost
question
A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is
positive. Then, the price rises to $25 and the firm makes whatever adjustments are necessary to maximize its
profit at the now-higher price. Once the firm has adjusted, which of the following statements is correct?
a. The firm's quantity of output is higher than it was previously.
b. The firm's average total cost is higher than it was previously.
c. The firm's marginal revenue is higher than it was previously.
d. All of the above are correct.
positive. Then, the price rises to $25 and the firm makes whatever adjustments are necessary to maximize its
profit at the now-higher price. Once the firm has adjusted, which of the following statements is correct?
a. The firm's quantity of output is higher than it was previously.
b. The firm's average total cost is higher than it was previously.
c. The firm's marginal revenue is higher than it was previously.
d. All of the above are correct.
answer
d. All of the above are correct.
question
Carla's Candy Store is maximizing profits by producing 1,000 pounds of candy per day. If Carla's fixed costs
unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output
a. is less than 1,000 pounds.
b. is still 1,000 pounds.
c. is more than 1,000 pounds.
d. becomes zero.
unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output
a. is less than 1,000 pounds.
b. is still 1,000 pounds.
c. is more than 1,000 pounds.
d. becomes zero.
answer
b. is still 1,000 pounds.
question
In the long-run equilibrium of a market with free entry and exit, if all firms have the same cost structure, then
a. marginal cost exceeds average total cost.
b. the price of the good exceeds average total cost.
c. average total cost exceeds the price of the good.
d. firms are operating at their efficient scale.
a. marginal cost exceeds average total cost.
b. the price of the good exceeds average total cost.
c. average total cost exceeds the price of the good.
d. firms are operating at their efficient scale.
answer
d. firms are operating at their efficient scale.
question
Tommy's Tires operates in a perfectly competitive market. If tires sell for $50 each and average total cost per
tire is $40 at the profit-maximizing output level, then in the long run
a. more firms will enter the market.
b. some firms will exit from the market.
c. the equilibrium price per tire will rise.
d. average total costs will fall.
tire is $40 at the profit-maximizing output level, then in the long run
a. more firms will enter the market.
b. some firms will exit from the market.
c. the equilibrium price per tire will rise.
d. average total costs will fall.
answer
a. more firms will enter the market.
question
In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is
a. zero.
b. equal to the industry profits.
c. the market supply curve.
d. a horizontal line.
a. zero.
b. equal to the industry profits.
c. the market supply curve.
d. a horizontal line.
answer
c. the market supply curve.
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