question
The distinction between the short run and the long run for a firm is that:
answer
in the short run at least one input is fixed whereas in the long run no inputs are fixed
question
Consider a local bakery that rents a facility at which it bakes loaves of bread using machinery (ovens, etc.) and labor. Which of the following best describes one of its short run variable inputs?
answer
the baking supplies (e.g., flour, eggs, salt, etc.)
question
The law of diminishing marginal product (or returns) states that:
answer
as more and more of a variable input, such as labor, is employed to a short-run production process, beyond a point output will increase at a decreasing rate
question
Consider a firms per-period (e.g., hourly) production process. If it employs 1 unit of labor, then 4 units of output will be produced; if it employs 2 units of labor, then 10 units of output will be produced; and if it employs 3 units of labor, then 18 units of output will be produced. It follows that:
answer
total output is increasing at an increasing rate and the marginal product of labor is increasing
question
The average product of labor (APL) is:
answer
total output divided by the number of workers employed
question
Which of the following is correct regarding the relationship between the marginal product of labor and the average product of labor?
i. if average product is less than marginal product, then marginal product will be decreasing
ii. if average product is greater than marginal product, then marginal product will be increasing
iii. if marginal product is greater than average product, then average product will be increasing
iv. if marginal product is less than average product, then average product will be decreasing
i. if average product is less than marginal product, then marginal product will be decreasing
ii. if average product is greater than marginal product, then marginal product will be increasing
iii. if marginal product is greater than average product, then average product will be increasing
iv. if marginal product is less than average product, then average product will be decreasing
answer
iii and iv
question
If a production process undergoes a technological improvement then:
answer
a given amount of inputs will yield more output
a given amount of output may be produced with fewer inputs
total variable cost and average variable cost will be reduced at all positive levels of output
the short run production function (or total product curve) will rotate upward
((((all of the above)))))
a given amount of output may be produced with fewer inputs
total variable cost and average variable cost will be reduced at all positive levels of output
the short run production function (or total product curve) will rotate upward
((((all of the above)))))
question
The law of diminishing marginal product (or returns) describes the relationship between inputs and outputs in the short run. The shapes of which cost curves can be attributed to the law of diminishing marginal product (or returns)?
answer
total variable cost, total cost, average variable cost, average total cost, and marginal cost
question
A fixed cost is:
answer
any cost which does not change when the firm changes the amount of output it produces
question
The total variable cost (TVC) incurred by a firm will depend upon:
answer
the amount of output produced
the prices of its variable inputs (e.g., the hourly wage rate that workers are paid)
the production techniques that are used (i.e., its short run production function)
(all the above)
the prices of its variable inputs (e.g., the hourly wage rate that workers are paid)
the production techniques that are used (i.e., its short run production function)
(all the above)
question
Firms confront a variety of costs in producing units of output to sell in the marketplace. Marginal cost (MC) references the:
answer
change in total cost that results from producing each additional unit of output
question
Suppose a firms production function is Q = 0.25K0.5 L0.5. Its level of capital is fixed at 16 units, the price of labor is PL = $8 per unit, and the price of capital is PK = $10 per unit. Given this information, the firms total cost (TC = TFC + TVC) function is:
answer
TC = 160 + 8Q2
question
Recall the economic distinction between the short run and the long run. If a competitive firm or a monopoly is operating in the short run then:
answer
it will not be able to change the level of all of the inputs used in the production process
question
Consider a good that is produced and traded in a perfectly competitive market. The market demand curve for the good is ______, while the demand curve for a single competitive firms good ______.
answer
downward sloping, perfectly elastic
question
For a perfectly competitive firm the total revenue it generates:
i. increases initially, reaches a maximum, and then decreases as the quantity of output that it sells increases
ii. increases by a constant amount as the quantity of output that it sells increases
iii. appears graphically as an upward sloping straight line from the origin with a slope that is equal to the market price of the good
i. increases initially, reaches a maximum, and then decreases as the quantity of output that it sells increases
ii. increases by a constant amount as the quantity of output that it sells increases
iii. appears graphically as an upward sloping straight line from the origin with a slope that is equal to the market price of the good
answer
ii and iii
question
Which of the following is not correct regarding the behavior of monopolies in the marketplace?
answer
because of their market power they charge the highest price possible
they sell their output at prices that maximize per-unit profits instead of total profits
because of their market power they are guaranteed to earn economic profits
all of the above
they sell their output at prices that maximize per-unit profits instead of total profits
because of their market power they are guaranteed to earn economic profits
all of the above
question
The rule of producing output to the point where MR = MC in order to maximize total profit or minimize total operating losses applies:
answer
to both perfectly competitive firms and monopolies
question
If a firm produces and sells units of output (Q) for a price per unit (P) that is equal to average total cost (ATC), then:
answer
it will earn zero profit
question
Under which of the following situations would a perfectly competitive firm increase its per-period total profits by increasing output:
answer
if it were producing a level of output such that MC < MR
question
Like a perfectly competitive firm, if a monopolist wants to know how much it will save by reducing its per-period output by one unit, it will evaluate its:
answer
marginal cost function
question
Suppose a firm is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $7 per unit and is incurring average variable costs of $6 per unit and average total costs of $8 per unit. Given this information, it may be concluded that the firm:
answer
is operating at a loss that is less than the loss incurred by shutting down
question
A perfectly competitive firms average fixed cost function is AFC = 30/Q, its average variable cost function is AVC = 6 + 0.1Q, and it marginal cost function is MC = 6 + 0.2Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the market price of the good is P = $12, then the firm will:
answer
produce 30 units of output and earn a total profit of $60
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