question
The table below shows a production function for a firm. All of the following can be concluded from the information in the table EXCEPT which one?
answer
The profit maximizing level of production is 76 units
question
Assume that olive oil is produced in a constant-cost, perfectly competitive industry, which is currently in long-run equilibrium. If the current price of olive oil is $5 per quart, and the demand for olive oil increases, then the price of olive oil will change in which of the following ways in the short run and long run?
answer
short run: be more than $5 long run: be equal to $5
question
Productive efficiency occurs when a firm produces output at a level at which
answer
average total cost is at a minimum
question
Which of the following is true of the marginal cost curve?
answer
It intersects the average variable cost curve and the average total cost curve at each curve's minimum point.
question
Which of the following segments of the marginal cost curve lies entirely on the firm's short-run supply curve?
answer
TUV
question
As the firm in the above diagram expands from plant size #1 to plant size #3, it experiences:
answer
economies of scale because of specialization, division of labor, and mechanization.
question
Assume that a profit-maximizing, perfectly competitive firm has economic losses in the short run. If the firm continues to produce and sell its goods, then which of the following must be true?
answer
The firm is covering all of its variable costs but not all of its fixed costs of production
question
Assume a company faces $200,000 in fixed costs and $180,000 in variable costs while producing 4,500 units of a good, and the same company faces fixed costs of $200,000, variable costs of $180,085 while producing 4,501 units of a good. Determine this companies four per-unit costs.
answer
AFC ($44); AVC ($40); ATC ($84); MC ($85)
question
Diminishing marginal returns for the first four units of a variable input is exhibited by the total product sequence:
answer
150, 190, 220, 240.
question
If labor is the only variable input in the production process, the short-run marginal cost curve is upward sloping because which of the following occurs as more and more labor is added?
answer
Output increases at a decreasing rate, and thus the cost of producing each additional unit of output increases.
question
Assume that, for a perfectly competitive firm, marginal cost equals average variable cost at $10, marginal cost equals average total cost at $15, and marginal revenue equals marginal cost at $12. On the basis of this information, the firm should...
answer
operate in the short run, even though it will sustain a loss.
question
Other things equal, if the prices of a firm's variable inputs were to fall
answer
marginal cost, average variable cost, and average total cost would all fall.
question
The graph above shows the marginal product (MP) and the average product (AP) of labor for a firm that uses labor as the only variable input and hires its labor in a perfectly competitive market. At which quantity of labor does marginal cost change from decreasing to increasing?
answer
L2
question
Which of the following must be true if a firm is experiencing constant returns to scale?
answer
Long run average total cost remains constant as the firm's output increases
question
In the short run, which of the following costs must continuously decrease as output produced increases?
answer
Average fixed cost
question
A constant-cost, perfectly competitive gadget industry is in long-run equilibrium. A decrease in the number of consumers of gadgets will most likely result in...
answer
a lower short-run price for gadgets, followed by a decrease in the quantity produced
question
The most profitable level of output for any firm operating in the short run is the level of output at which...
answer
price equals marginal cost
question
All of the following are essential characteristics of a perfectly competitive industry EXCEPT:
answer
All firms in the industry are price makers
question
If a firm's production process exhibits diseconomies of scale, which of the following will occur when the firm's output increases?
answer
Its long-run average total costs will rise
question
Which of the following indicates that a perfectly competitive firm is in long-run equilibrium?
answer
Price equals marginal cost equals minimum average total cost equals marginal revenue
question
Which of the following is NOT true for a perfectly competitive firm?
answer
The firm faces a downward-sloping demand curve.
question
At a firm's current rate of output, the marginal cost is $70, the average variable cost is $40, the average fixed cost is $30, and the product price is $70. Which of the following statements is true for the firm?
answer
Economic profits are zero because price equals average total cost
question
If the average variable cost of producing 5 units of a good is $100 and the average variable cost of producing 6 units is $150, then the marginal cost of increasing output from 5 to 6 units is...
answer
$400
question
Short-run marginal costs eventually increase because of the effects of...
answer
diminishing marginal product
question
Refer to the graph below for a representative firm in a perfectly competitive, constant-cost industry, which shows the firm's marginal cost (MC), average total cost (ATC), and average variable cost (AVC).
answer
between P2 and P3
question
Which of the following MUST be true to move the firm into long-run equilibrium?
answer
If the price is above P3 new firms will enter the industry
question
When total (physical) product is at its maximum, marginal (physical) product must be...
answer
equal to zero
question
As a firm increases its output, the difference between the firm's average total cost and its average variable cost gets smaller because the firm's...
answer
average fixed cost is decreasing
question
An entrepreneur has earned enough total revenue to cover her accounting costs, but economic losses are being incurred. What must be true?
answer
Her accounting profits are less than her implicit costs.
question
Which of the following is a result of increasing returns to scale?
answer
Downward-sloping long-run average total cost curve
question
Which of the following statements about a constant-cost perfectly competitive industry in long-run equilibrium must be true?
answer
An increase in demand will cause no change in the long-run equilibrium price
question
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...
answer
-$5,000
question
If a firm is experiencing economies of scale, which of the following will decrease as output increases?
answer
Long-run average total cost
question
If the marginal cost of producing the first unit of some good is $50 and the marginal cost of producing the second unit is $60, the average variable cost of producing 2 units is...
answer
$55
question
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. Price exceeds average total cost.
II. Economic profits are positive.
III. Marginal cost equals average total cost.
IV. New firms are likely to enter the market in the long run.
I. Price exceeds average total cost.
II. Economic profits are positive.
III. Marginal cost equals average total cost.
IV. New firms are likely to enter the market in the long run.
answer
I, II, and IV onlyThis answer is correct.
question
Which of the following MUST be true of the long-run.
answer
All factors of production are variable.
question
A farmer grows wheat using two inputs: labor and land whose prices are constant. If she triples her inputs, she finds that the quantity of wheat produced doubles. Therefore, it must be true that in this output range her long-run average total cost curve is
answer
upward sloping
question
Assume a firm faces $200,000 in fixed costs and $180,000 in variable costs while producing 4,500 units of a good, and the same firm faces fixed costs of $200,000, variable costs of $180,085 while producing 4,501 units of a good. Using the information given, determine which of the following statements is true.
answer
The firm should reduce production in order to minimize per-unit costs.
question
In order to minimize short-run losses, a profit maximizing firm will necessarily shut down production under which of the following conditions?
answer
Average revenue is less than average variable cost.
question
If a perfectly competitive firm is producing where marginal cost is rising and less than marginal revenue, to maximize profits it should...
answer
increase the level of production
question
If a firm desired to produce at a level equal to 'x' in the diagram above, which plant size should they be operating at if they want to minimize their average total costs?
answer
#2, because that is where ATC would be minimized, given the level of output
question
Assume a company faces $200,000 in fixed costs and $180,000 in variable costs while producing 4,500 units of a good. Which of the following statements would be true?
answer
It should sell its product at a price of $85 in order to make an accounting profit.
question
The short-run supply curve for a firm in a perfectly competitive industry is...
answer
its marginal cost curve equal to and above the minimum AVC
question
At 100 units of output, a firm's total cost is $10,000. If the firm's total fixed cost is $4,000, what are its average variable cost, average fixed cost, and average total cost at this level of production?
answer
$60, $40, and $100
question
If a company decides to increase production by increasing its use of the factors of production by 150%, which of the following statements would NOT be true?
answer
If the company's production increases by 160%, then they are operating with diseconomies of scale.
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