question
B
answer
Which of the following MUST be true of the long run?
A
It is at least one year in duration.
B
All factors of production are variable.
C
At least one factor of production is fixed.
D
Marginal costs are constant.
E
Average total costs are constant.
A
It is at least one year in duration.
B
All factors of production are variable.
C
At least one factor of production is fixed.
D
Marginal costs are constant.
E
Average total costs are constant.
question
C
answer
Suppose a firm's production process exhibits diseconomies of scale. How and why will costs change if the firm reduces its output?
A
Long-run average total cost will increase because it becomes more difficult for the firm to manage its workforce.
B
Long-run average fixed costs will increase because the firm produces fewer units of output.
C
Long-run average total cost will decrease because it becomes easier for the firm to manage its workforce.
D
Long-run average fixed costs will decrease because the firm produces fewer units of output.
E
Long-run average total cost will decrease because it becomes more difficult for the firm to manage its workforce.
A
Long-run average total cost will increase because it becomes more difficult for the firm to manage its workforce.
B
Long-run average fixed costs will increase because the firm produces fewer units of output.
C
Long-run average total cost will decrease because it becomes easier for the firm to manage its workforce.
D
Long-run average fixed costs will decrease because the firm produces fewer units of output.
E
Long-run average total cost will decrease because it becomes more difficult for the firm to manage its workforce.
question
C
answer
What does the minimum efficient scale measure?
A
The smallest output level at which short-run average total cost is minimized.
B
The smallest output level at which short-run total cost is minimized.
C
The smallest output level at which long-run average total cost is minimized.
D
The largest output level at which long-run average total cost is minimized.
E
The largest output level at which long-run total cost is minimized.
A
The smallest output level at which short-run average total cost is minimized.
B
The smallest output level at which short-run total cost is minimized.
C
The smallest output level at which long-run average total cost is minimized.
D
The largest output level at which long-run average total cost is minimized.
E
The largest output level at which long-run total cost is minimized.
question
D
answer
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?
A
Its marginal cost is $12.50, and its average total cost is $12.50.
B
Its marginal cost is $12.50, and its average variable cost is $12.50.
C
Its marginal cost is $15.00, and its average total cost is $12.50.
D
Its marginal cost is $15.00, and its average variable cost is $12.50.
E
Its marginal cost is $15.00, and its average fixed cost is $12.50.
A
Its marginal cost is $12.50, and its average total cost is $12.50.
B
Its marginal cost is $12.50, and its average variable cost is $12.50.
C
Its marginal cost is $15.00, and its average total cost is $12.50.
D
Its marginal cost is $15.00, and its average variable cost is $12.50.
E
Its marginal cost is $15.00, and its average fixed cost is $12.50.
question
C
answer
Competitive firms maximize:
A)total profits by producing where price exceeds average total cost by the greatest amount
B)per unit profits by producing where marginal revenue equals marginal cost
C)total profits by producing where price equals marginal cost
D)market share by producing where price equals average total cost
A)total profits by producing where price exceeds average total cost by the greatest amount
B)per unit profits by producing where marginal revenue equals marginal cost
C)total profits by producing where price equals marginal cost
D)market share by producing where price equals average total cost
question
A
answer
For all values above minimum average variable cost, a competitive firm's:
A) supply curve is coincident with its marginal cost curve
B) supply curve is coincident with its average total cost curve
C) demand curve is coincident with its average total cost curve
D) demand curve is coincident with its supply curve
A) supply curve is coincident with its marginal cost curve
B) supply curve is coincident with its average total cost curve
C) demand curve is coincident with its average total cost curve
D) demand curve is coincident with its supply curve
question
D
answer
A purely competitive firm has set its price at the market price of $210. The firm is operating on the upsloping section of its marginal cost curve and t its current output level, its marginal cost is $225. Assuming the firm wishes to maximize profit, it should:
A) cut its price and increase production
B) raise its price and cut production
C) cut its price and cut production
D) leave price unchanged and cut production
A) cut its price and increase production
B) raise its price and cut production
C) cut its price and cut production
D) leave price unchanged and cut production
question
D
answer
Which one of the following price-quantity combinations is not on this competitive firm's short-run supply curve?
A) P1, 47
B) P2, 44
C) P3, 40
D) P4, 30
A) P1, 47
B) P2, 44
C) P3, 40
D) P4, 30
question
B
answer
Which of the following is most likely to be an implicit cost for Company X?
a. Transportation costs paid to a nearby trucking firm.
b. Forgone rent from the building owned and used by Company X.
c. Rental payments on IBM equipment.
d. Payments for raw materials purchased from Company Y.
a. Transportation costs paid to a nearby trucking firm.
b. Forgone rent from the building owned and used by Company X.
c. Rental payments on IBM equipment.
d. Payments for raw materials purchased from Company Y.
question
A
answer
The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the data. Creamy Crisp's economic profit is:
a. $94,000.
b. $230,000.
c. $80,000.
d. $150,000.
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Refer to the data. Creamy Crisp's economic profit is:
a. $94,000.
b. $230,000.
c. $80,000.
d. $150,000.
question
C
answer
Marginal cost:
a. rises for a time, but then begins to decline when diminishing returns set in.
b. is the difference between total cost and total variable cost.
c. equals both average variable cost and average total cost at their respective minimums.
d. declines continuously as output increases.
a. rises for a time, but then begins to decline when diminishing returns set in.
b. is the difference between total cost and total variable cost.
c. equals both average variable cost and average total cost at their respective minimums.
d. declines continuously as output increases.
question
C
answer
The basic difference between the short run and the long run is that:
a. all costs are fixed in the short run, but all costs are variable in the long run.
b. economies of scale may be present in the short run but not in the long run.
c. at least one resource is fixed in the short run, while all resources are variable in the long run.
d. the law of diminishing returns applies in the long run but not in the short run.
a. all costs are fixed in the short run, but all costs are variable in the long run.
b. economies of scale may be present in the short run but not in the long run.
c. at least one resource is fixed in the short run, while all resources are variable in the long run.
d. the law of diminishing returns applies in the long run but not in the short run.
question
C
answer
Which of the following best expresses the law of diminishing returns?
a. Population growth automatically adjusts to that level at which the average product per worker will be at a maximum.
b. Because large-scale production allows the realization of economies of scale, the real costs of production vary directly with the level of output.
c. As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.
d. Proportionate increases in the inputs of all resources will result in a less-than-proportionate increase in total output.
a. Population growth automatically adjusts to that level at which the average product per worker will be at a maximum.
b. Because large-scale production allows the realization of economies of scale, the real costs of production vary directly with the level of output.
c. As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.
d. Proportionate increases in the inputs of all resources will result in a less-than-proportionate increase in total output.
question
A
answer
The total output of a firm will be at a maximum where:
a. MP is zero.
b. AP is at a minimum.
c. MP is at a maximum.
d. AP is at a maximum.
a. MP is zero.
b. AP is at a minimum.
c. MP is at a maximum.
d. AP is at a maximum.
question
B
answer
When a firm is experiencing diseconomies of scale:
a. It should lower its price to the competitive level
b. Its average total costs will decline if it reduces its scale of operations.
c. It should increase the size of its plant to decrease its average total costs
d. It should increase the amount of labor it hires
a. It should lower its price to the competitive level
b. Its average total costs will decline if it reduces its scale of operations.
c. It should increase the size of its plant to decrease its average total costs
d. It should increase the amount of labor it hires
question
B
answer
Which of the following is not a characteristic of pure competition?
a. A larger number of sellers.
b. Price strategies by firms.
c. A standardized product.
d. No barriers to entry.
a. A larger number of sellers.
b. Price strategies by firms.
c. A standardized product.
d. No barriers to entry.
question
D
answer
For a purely competitive seller, price equals:
a. total revenue divided by output.
b. marginal revenue.
c. average revenue.
d. all of these.
a. total revenue divided by output.
b. marginal revenue.
c. average revenue.
d. all of these.
question
D
answer
A firm reaches a break-even point (normal profit position) where:
a. total revenue equals total variable cost.
b. marginal cost intersects the average variable cost curve.
c. marginal revenue cuts the horizontal axis.
d. total revenue and total cost are equal.
a. total revenue equals total variable cost.
b. marginal cost intersects the average variable cost curve.
c. marginal revenue cuts the horizontal axis.
d. total revenue and total cost are equal.
question
D
answer
The MR = MC rule applies:
a. only to monopolies.
b. only to purely competitive firms.
c. only when the firm is a "price taker."
d. to firms in all types of industries.
a. only to monopolies.
b. only to purely competitive firms.
c. only when the firm is a "price taker."
d. to firms in all types of industries.
question
D
answer
A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should:
a. shut down in the short run.
b. liquidate its assets and go out of business.
c. produce because it will realize an economic profit.
d. produce because the resulting loss is less than its TFC.
a. shut down in the short run.
b. liquidate its assets and go out of business.
c. produce because it will realize an economic profit.
d. produce because the resulting loss is less than its TFC.
question
D
answer
Suppose you find that the price of your product is less than minimum AVC. You should:
a. maximize your profits by producing where P = MC.
b. close down because total revenue exceeds total variable cost.
c. minimize your losses by producing where P = MC.
d. close down because, by producing, your losses will exceed your total fixed costs.
a. maximize your profits by producing where P = MC.
b. close down because total revenue exceeds total variable cost.
c. minimize your losses by producing where P = MC.
d. close down because, by producing, your losses will exceed your total fixed costs.
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