question
A perfectly competitive firm's marginal cost is:
equal to average cost
the change in total cost as input changes
the change in output as technology changes
the change in total cost as output changes
equal to average cost
the change in total cost as input changes
the change in output as technology changes
the change in total cost as output changes
answer
Correct Answer the change in total cost as output changes
question
A rotation down of the total cost curve (indicating lower TC for each level of output with an unchanged y-intercept) could be caused by:
a decrease in the firm's fixed costs of production
a decrease in demand
a technological change that increases the productivity of variable inputs
an increase in input prices
a decrease in the firm's fixed costs of production
a decrease in demand
a technological change that increases the productivity of variable inputs
an increase in input prices
answer
Correct! a technological change that increases the productivity of variable inputs
question
A shift up of the total cost curve (with a higher y-intercept) could be caused by:
an increase in input prices
a technological change that increases the productivity of variable inputs
an increase in demand
an increase in a fixed cost
an increase in input prices
a technological change that increases the productivity of variable inputs
an increase in demand
an increase in a fixed cost
answer
Correct Answer an increase in a fixed cost
question
A fixed cost is a cost that:
does not change in the long run
decreases as the firm increases output
does not change with the level of the firm's output
captures the wear and tear of using capital in the production process
does not change in the long run
decreases as the firm increases output
does not change with the level of the firm's output
captures the wear and tear of using capital in the production process
answer
Correct! does not change with the level of the firm's output
question
A firms profit is equal to:
accounting revenue minus economic cost
total revenue minus accounting cost
total revenue minus economic cost
total cost minus total revenue
accounting revenue minus economic cost
total revenue minus accounting cost
total revenue minus economic cost
total cost minus total revenue
answer
Correct! total revenue minus economic cost
question
Economic cost is:
the same as accounting cost
monetary outlays minus opportunity cost
the value of implicit costs such as owner supplied resources
the sum of explicit and implicit costs
the same as accounting cost
monetary outlays minus opportunity cost
the value of implicit costs such as owner supplied resources
the sum of explicit and implicit costs
answer
Correct! the sum of explicit and implicit costs
question
A perfectly competitive industry is:
dominated by several large firms
one in which consumers cannot distinguish one firm's product from another's
one in which each firm produces a product slightly different from its competitors
new firms have difficulty entering
dominated by several large firms
one in which consumers cannot distinguish one firm's product from another's
one in which each firm produces a product slightly different from its competitors
new firms have difficulty entering
answer
Correct! one in which consumers cannot distinguish one firm’s product from another’s
question
An entrepreneur gathers the following information to decide whether to stay open for business or to exit permanently.
Future operating revenue = $18 million
Future operating cost = $14 million
Sunk cost = $8 million
What should the entrepreneur do?
She should continue to operate the business because operating revenues exceed operating cost
She should close the business because operating revenues are not sufficient to cover operating costs and sunk costs
She should close the business because the sunk costs are greater than zero
She should continue to operating the business to help pay off the sunk costs
Future operating revenue = $18 million
Future operating cost = $14 million
Sunk cost = $8 million
What should the entrepreneur do?
She should continue to operate the business because operating revenues exceed operating cost
She should close the business because operating revenues are not sufficient to cover operating costs and sunk costs
She should close the business because the sunk costs are greater than zero
She should continue to operating the business to help pay off the sunk costs
answer
Correct Answer She should continue to operate the business because operating revenues exceed operating cost
question
Economic profit is equal to:
total revenue minus the accounting cost of producing goods and services
total revenue minus the explicit cost of producing goods and services
total revenue minus total cost, including opportunity cost, of producing goods and services
average revenue minus average cost of producing the last unit of a good or service
total revenue minus the accounting cost of producing goods and services
total revenue minus the explicit cost of producing goods and services
total revenue minus total cost, including opportunity cost, of producing goods and services
average revenue minus average cost of producing the last unit of a good or service
answer
Correct Answer total revenue minus total cost, including opportunity cost, of producing goods and services
question
Which of the following is an example of the sunk cost fallacy?
I paid $85 for this wool sweater, but it is too scratchy so I'm going to give it to my mother
I'm not going to allow the sacrifice of 2527 troops who have died in Iraq to be in vain by pulling out before the job is done
I will not buy an Under Armour hoodie until it goes on sale for at least 25% off
I'm going to buy another bag of popcorn because this popcorn is burnt
I paid $85 for this wool sweater, but it is too scratchy so I'm going to give it to my mother
I'm not going to allow the sacrifice of 2527 troops who have died in Iraq to be in vain by pulling out before the job is done
I will not buy an Under Armour hoodie until it goes on sale for at least 25% off
I'm going to buy another bag of popcorn because this popcorn is burnt
answer
Correct! I'm not going to allow the sacrifice of 2527 troops who have died in Iraq to be in vain by pulling out before the job is done
question
To maximize profits, firms should produce where:
marginal revenue equals marginal cost
marginal revenue exceeds marginal cost
price equals average variable cost
average total cost is below price
marginal revenue equals marginal cost
marginal revenue exceeds marginal cost
price equals average variable cost
average total cost is below price
answer
Correct! marginal revenue equals marginal cost
question
Variable costs:
are the difference between a firm's average total costs and its average fixed costs
are the difference between a firm's total cost and its total fixed cost
are typically greater than fixed costs
all of the above
are the difference between a firm's average total costs and its average fixed costs
are the difference between a firm's total cost and its total fixed cost
are typically greater than fixed costs
all of the above
answer
Correct! are the difference between a firm's total cost and its total fixed cost
question
Which of the following is true?
because fixed cost does not vary with output, the fixed cost curve is a vertical line
When output is zero, total cost equals total fixed cost
both are true
neither is true
because fixed cost does not vary with output, the fixed cost curve is a vertical line
When output is zero, total cost equals total fixed cost
both are true
neither is true
answer
Correct! When output is zero, total cost equals total fixed cost
question
A firm is producing 4 units of output at an average cost of $40. If it increases output to 5 units, average total cost rises to $50. What is the marginal cost of the fifth unit of output?
$10
$30
$90
$120
$10
$30
$90
$120
answer
Correct Answer $90
question
firm is producing 10,000 units of output at a total cost of $5,000. If the firm increases output by 5,000 units and costs rise by $2000 the firm is experiencing:
economies of scale
economies of scope
constant returns to scale
diseconomies of scale
economies of scale
economies of scope
constant returns to scale
diseconomies of scale
answer
Correct! economies of scale
question
In a short run equilibrium:
each firm makes zero economic profit
each firm produces on its average total cost curve
each firm maximizes output
the number of firms is fixed
each firm makes zero economic profit
each firm produces on its average total cost curve
each firm maximizes output
the number of firms is fixed
answer
Correct! the number of firms is fixed
question
The demand faced by a perfectly competitive firm is:
the same as market demand
equal to its marginal cost curve above minimum average variable cost
perfectly elastic at the market price
perfectly inelastic at market price
the same as market demand
equal to its marginal cost curve above minimum average variable cost
perfectly elastic at the market price
perfectly inelastic at market price
answer
Correct Answer perfectly elastic at the market price
question
A firm should ______ output whenever MR > MC because ______________.
increase; total revenue exceeds total costs
increase; revenues will rise by more than costs thus increase the firm's profit
reduce; revenue will rise by more than costs thus increasing the firm's profit
leave output unchanged; selling more will cause MR to increase by less than MC
increase; total revenue exceeds total costs
increase; revenues will rise by more than costs thus increase the firm's profit
reduce; revenue will rise by more than costs thus increasing the firm's profit
leave output unchanged; selling more will cause MR to increase by less than MC
answer
Correct! increase; revenues will rise by more than costs thus increase the firm’s profit
question
The shutdown point is:
where price equals minimum average variable cost
when firms enter the industry
when firms exit the industry
where price equals average total cost
where price equals minimum average variable cost
when firms enter the industry
when firms exit the industry
where price equals average total cost
answer
Correct! where price equals minimum average variable cost
question
the perfectly competitive firm's short run supply curve is the portion of its:
marginal cost curve that lies above minimum average variable cost
marginal cost curve that lies above minimum average total cost
average variable cost curve that lies above its marginal revenue line
average total cost curve that lies above marginal revenue line
marginal cost curve that lies above minimum average variable cost
marginal cost curve that lies above minimum average total cost
average variable cost curve that lies above its marginal revenue line
average total cost curve that lies above marginal revenue line
answer
Correct Answer marginal cost curve that lies above minimum average variable cost
question
Suppose the market for kale is in long run equilibrium. In the short run, what will happen if there is an E.coli outbreak that causes a decrease in the demand for kale?
market price of kale will fall, causing each firm to sell less kale
marginal cost will increase for each producer, causing prices to rise and profits to fall
marginal cost will decrease for each producer, leaving prices unchanged
existing firms will raise prices to make up for the decrease in demand
market price of kale will fall, causing each firm to sell less kale
marginal cost will increase for each producer, causing prices to rise and profits to fall
marginal cost will decrease for each producer, leaving prices unchanged
existing firms will raise prices to make up for the decrease in demand
answer
market price of kale will fall, causing each firm to sell less kale
question
Economies of scale occurs when ATC ___________ as output _____________
increases; increases
decreases; decreases
decreases; increases
none of the above
increases; increases
decreases; decreases
decreases; increases
none of the above
answer
Correct! decreases; increases
question
What happens to the long-run equilibrium price in a perfectly competitive industry when there is an increase in product demand?
LR price will rise to reflect lower long run ATC if it is an increasing cost industry
LR price will fall to reflect a lower long run ATC if it is a constant cost industry
LR price will rise to reflect higher long run ATC if it is an increasing cost industry
LR price will fall to reflect a higher long run ATC if it is an increasing cost industry
LR price will rise to reflect lower long run ATC if it is an increasing cost industry
LR price will fall to reflect a lower long run ATC if it is a constant cost industry
LR price will rise to reflect higher long run ATC if it is an increasing cost industry
LR price will fall to reflect a higher long run ATC if it is an increasing cost industry
answer
Correct! LR price will rise to reflect higher long run ATC if it is an increasing cost industry
question
In the long run in competitive industries:
the number of firms is fixed
firms must earn positive economic profit
firms earn zero economic profit
firms have an incentive to increase output
the number of firms is fixed
firms must earn positive economic profit
firms earn zero economic profit
firms have an incentive to increase output
answer
Correct! firms earn zero economic profit
question
If a firm's total cost is defined as TC = 100 + 4Q + 2Q2 then which of the following is true?
Fixed cost is 100
Variable cost is 4Q + 2Q
marginal cost is 4Q
marginal cost if 4 - 2Q
Fixed cost is 100
Variable cost is 4Q + 2Q
marginal cost is 4Q
marginal cost if 4 - 2Q
answer
Correct! Fixed cost is 100
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