question
Economists assume that the typical person who starts her own business does so with the intention of
a) donating the profits from her business to charity.
b) capturing the highest number of sales in her industry.
c) maximizing profits.
d) minimizing costs.
a) donating the profits from her business to charity.
b) capturing the highest number of sales in her industry.
c) maximizing profits.
d) minimizing costs.
answer
C
question
Billy's Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy's Bean Bag Emporium would be
a) -$3,875.
b) -$26,125
c) $28,500.
d) $30,000.
a) -$3,875.
b) -$26,125
c) $28,500.
d) $30,000.
answer
A
question
Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3 percent interest. He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase supplies and earned $50,000 in revenue during his first year. Which of the following statements is correct?
a) Sebastian's economic profit is $4,000, and his accounting profit is $34,600.
b) Sebastian's economic profit is $4,600, and his accounting profit is $35,000.
c) Sebastian's economic profit is -$16,000, and his accounting profit is $34,600.
d) Sebastian's economic profit is -$16,000, and his accounting profit is $14,600.
a) Sebastian's economic profit is $4,000, and his accounting profit is $34,600.
b) Sebastian's economic profit is $4,600, and his accounting profit is $35,000.
c) Sebastian's economic profit is -$16,000, and his accounting profit is $34,600.
d) Sebastian's economic profit is -$16,000, and his accounting profit is $14,600.
answer
A
question
Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal
a) $2
b) $4
c) $1,000
d) $2,000
a) $2
b) $4
c) $1,000
d) $2,000
answer
C
question
(look at phone 3-17)
Refer to Table 13-7. What is the marginal product of the sixth worker?
a) 215
b) 30
c) 25
d) 190
Refer to Table 13-7. What is the marginal product of the sixth worker?
a) 215
b) 30
c) 25
d) 190
answer
C
question
(look at phone 3-17)
Refer to Table 13-7. At which number of workers does diminishing marginal product begin?
a) 1
b) 2
c) 3
d) 4
Refer to Table 13-7. At which number of workers does diminishing marginal product begin?
a) 1
b) 2
c) 3
d) 4
answer
C
question
(look at phone 13-16)
Refer to Table 13-16. What is the fixed cost of producing 0 units of output?
a) $0
b) $12
c) $24
d) $16
Refer to Table 13-16. What is the fixed cost of producing 0 units of output?
a) $0
b) $12
c) $24
d) $16
answer
C
question
(look at phone 13-16)
Refer to Table 13-16. What is the marginal cost of the 4th unit of output?
a) $40
b) $52
c) $68
d) $136
Refer to Table 13-16. What is the marginal cost of the 4th unit of output?
a) $40
b) $52
c) $68
d) $136
answer
B
question
(look at 13-17 on phone)
Refer to Table 13-17. Firm 4's efficient scale occurs at what quantity?
a) 2
b) 3
c) 4
d) 5
Refer to Table 13-17. Firm 4's efficient scale occurs at what quantity?
a) 2
b) 3
c) 4
d) 5
answer
B
question
Why does a firm in a competitive industry charge the market price?
a) If a firm charges less than the market price, it loses potential revenue.
b) If a firm charges more than the market price, it loses all its customers to other firms.
c) The firm can sell as many units of output as it wants to at the market price.
d) All of the above are correct.
a) If a firm charges less than the market price, it loses potential revenue.
b) If a firm charges more than the market price, it loses all its customers to other firms.
c) The firm can sell as many units of output as it wants to at the market price.
d) All of the above are correct.
answer
D
question
If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will
a) more than triple.
b) less than triple.
c) exactly triple.
d) Any of the above may be true depending on the firm's labor productivity.
a) more than triple.
b) less than triple.
c) exactly triple.
d) Any of the above may be true depending on the firm's labor productivity.
answer
C
question
Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should
a) make more than 20 wedding cakes per month.
b) make fewer than 20 wedding cakes per month.
c) continue to make 20 wedding cakes per month.
d) We do not have enough information to answer the question.
a) make more than 20 wedding cakes per month.
b) make fewer than 20 wedding cakes per month.
c) continue to make 20 wedding cakes per month.
d) We do not have enough information to answer the question.
answer
B
question
Refer to Table 14-8. In order to maximize profits, the firm will produce
a) 1 unit of output because marginal cost is minimized.
b) 4 units of output because marginal revenue exceeds marginal cost.
c) 5 units of output because marginal revenue equals marginal cost.
d) 7 units of output because total revenue is maximized.
a) 1 unit of output because marginal cost is minimized.
b) 4 units of output because marginal revenue exceeds marginal cost.
c) 5 units of output because marginal revenue equals marginal cost.
d) 7 units of output because total revenue is maximized.
answer
C
question
Refer to Table 14-12. What is the marginal cost of the 5th unit?
a) $55
b) $60
c) $68
d) $80
a) $55
b) $60
c) $68
d) $80
answer
C
question
Refer to Table 14-12. At what quantity does Bill maximize profits?
a) 3
b) 6
c) 7
d) 8
a) 3
b) 6
c) 7
d) 8
answer
B
question
A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's
a) average total cost curve intersects the marginal cost curve at an output level of less than 200 units.
b) average variable cost curve intersects the marginal cost curve at an output level of less than 200 units.
c) profit is $400.
d) All of the above are correct.
a) average total cost curve intersects the marginal cost curve at an output level of less than 200 units.
b) average variable cost curve intersects the marginal cost curve at an output level of less than 200 units.
c) profit is $400.
d) All of the above are correct.
answer
D
question
Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should
a) shut down her business in the short run but continue to operate in the long run.
b) continue to operate in the short run but shut down in the long run.
c) continue to operate in both the short run and long run.
d) shut down in both the short run and long run.
a) shut down her business in the short run but continue to operate in the long run.
b) continue to operate in the short run but shut down in the long run.
c) continue to operate in both the short run and long run.
d) shut down in both the short run and long run.
answer
D
question
Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona'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.
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
question
A profit-maximizing firm in a competitive market is able to sell its product for $7. At its current level of output, the firm's average total cost is $10. The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units. The firm experiences a
a) profit of more than $27.
b) profit of exactly $27.
c) loss of more than $27.
d) loss of exactly $27.
a) profit of more than $27.
b) profit of exactly $27.
c) loss of more than $27.
d) loss of exactly $27.
answer
D
question
Refer to Figure 14-5. When market price is P7, a profit-maximizing firm's short-run profits can be represented by the area
a) (P7 - P5) × Q3.
b) P7 × Q3.
c) (P7 - P3) × Q3.
d) We are unable to determine the firm's profits because the quantity that the firm would produce is not labeled on the graph.
a) (P7 - P5) × Q3.
b) P7 × Q3.
c) (P7 - P3) × Q3.
d) We are unable to determine the firm's profits because the quantity that the firm would produce is not labeled on the graph.
answer
A
question
Refer to Figure 14-5. When market price is P2, a profit-maximizing firm's losses can be represented by the area
a) (P4 - P2) × Q2.
b) (P2 - P1) × (Q2-Q1).
c) At a market price of P2, the firm earns profits, not losses.
d) At a market price of P2 the firm has losses, but the reference points in the figure don't identify the losses.
a) (P4 - P2) × Q2.
b) (P2 - P1) × (Q2-Q1).
c) At a market price of P2, the firm earns profits, not losses.
d) At a market price of P2 the firm has losses, but the reference points in the figure don't identify the losses.
answer
D
question
For a particular competitive firm, the minimum value of average variable cost (AVC) is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC) is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?
a) In the short run, the firm will shut down if the price of its product is $11.
b) In the long run, the firm will shut down if the price of its product is $14.
c) If the price of its product is $12, then the firm's loss if it produces 200 units of output is the same as its loss if it shuts down.
d) All of the above are correct.
a) In the short run, the firm will shut down if the price of its product is $11.
b) In the long run, the firm will shut down if the price of its product is $14.
c) If the price of its product is $12, then the firm's loss if it produces 200 units of output is the same as its loss if it shuts down.
d) All of the above are correct.
answer
D
question
Refer to Figure 14-11 9 (IT'S NOT THERE). The figure above is for a firm operating in a competitive industry. If there were four identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve?
Point Price Quantity
A $4 16
B $4 32
C $6 6
D $8 64
a) A only
b) A and C only
c) B only
d) B and D only
Point Price Quantity
A $4 16
B $4 32
C $6 6
D $8 64
a) A only
b) A and C only
c) B only
d) B and D only
answer
A
question
In a competitive market with free entry and exit, if all firms have the same cost structure, then
a) all firms will operate at their efficient scale in the short run.
b) all firms will operate at their efficient scale in the long run.
c) the price of the product will differ across firms.
d) Both a and b are correct.
a) all firms will operate at their efficient scale in the short run.
b) all firms will operate at their efficient scale in the long run.
c) the price of the product will differ across firms.
d) Both a and b are correct.
answer
B
question
Which of the following would be most likely to have monopoly power?
a) a national florist
b) an online bookstore
c) a local restaurant
d) a local electrical cooperative
a) a national florist
b) an online bookstore
c) a local restaurant
d) a local electrical cooperative
answer
D
question
Which of the following is not a difference between monopolies and perfectly competitive markets?
a) Monopolies can earn profits in the long run while perfectly competitive firms break even.
b) Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.
c) Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.
d) Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.
a) Monopolies can earn profits in the long run while perfectly competitive firms break even.
b) Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.
c) Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.
d) Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.
answer
C
question
Refer to Figure 15-5. A profit-maximizing monopoly will charge a price of
a) P1
b) P2
c) P3
d) P4
a) P1
b) P2
c) P3
d) P4
answer
B
question
Refer to Figure 15-5. A profit-maximizing monopoly's profit is equal to
a) P2 x Q3.
b) (P2-P4) x Q3.
c) (P2-P5) x Q3.
d) (P1-P6) x Q1.
a) P2 x Q3.
b) (P2-P4) x Q3.
c) (P2-P5) x Q3.
d) (P1-P6) x Q1.
answer
C
question
Refer to Table 15-10. If the monopolist has total fixed costs of $40 and a constant marginal cost of $5, what is the profit-maximizing level of output?
a) 7 units
b) 16 units
c) 23 units
d) 31 units
a) 7 units
b) 16 units
c) 23 units
d) 31 units
answer
B
question
Refer to Figure 15-16. Which triangle represents the monopoly deadweight loss?
a) the triangle with vertical lines that is bordered by ACT
b) the triangle with vertical lines and light grey shading that is bordered by ABH
c) the triangle with vertical lines and dark grey shading that is bordered by HIT
d) the triangle with dark grey shading that is bordered by HKT
a) the triangle with vertical lines that is bordered by ACT
b) the triangle with vertical lines and light grey shading that is bordered by ABH
c) the triangle with vertical lines and dark grey shading that is bordered by HIT
d) the triangle with dark grey shading that is bordered by HKT
answer
D
question
Consider a profit-maximizing monopoly pricing under the following conditions. The profit-maximizing quantity is 40 units, the profit-maximizing price is $160, and the marginal cost of the 40th unit is $120. If the good were produced in a perfectly competitive market, the equilibrium quantity would be 50, and the equilibrium price would be $150. The demand curve and marginal cost curves are linear. What is the value of the deadweight loss created by the monopolist?
a) $40
b) $100
c) $200
d) $400
a) $40
b) $100
c) $200
d) $400
answer
C
question
Refer to Figure 15-21. What is the price and quantity for this natural monopolist under fair return pricing?
a) A and J
b) E and J
c) F and K
d) H and L
a) A and J
b) E and J
c) F and K
d) H and L
answer
C
question
Refer to Figure 15-21. What is the price and quantity for this natural monopolist under socially optimal pricing?
a) A and J
b) E and J
c) F and K
d) H and L
a) A and J
b) E and J
c) F and K
d) H and L
answer
D
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