question
A basic characteristic of the short run for a firm is that:
answer
the firm does not have sufficient time to vary the level of all of the inputs used in the production process
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 fixed costs?
answer
the monthly rental payments it makes to the owner of the facility
question
Consider a small farm that uses machinery and laborers to grow and harvest fruits or vegetables. Which of the following best describes one of its short run variable inputs?
answer
the seeds or seedlings to be planted
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 8 units of output will be produced; if it employs 2 units of labor, then 18 units of output will be produced; and if it employs 3 units of labor, then 30 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 marginal product of labor (MPL) is:
answer
the change in total output attributed to employing an additional worker
question
Which of the following is correct?
i. if average product is greater than marginal product, then marginal product must be increasing
ii. if average product is less than marginal product, then marginal product must be decreasing
iii. if marginal product is greater than average product, then average product must be increasing
iv. if marginal product is less than average product, then average product must be decreasing
i. if average product is greater than marginal product, then marginal product must be increasing
ii. if average product is less than marginal product, then marginal product must be decreasing
iii. if marginal product is greater than average product, then average product must be increasing
iv. if marginal product is less than average product, then average product must be decreasing
answer
iii and iv
question
If a technological improvement occurs in a production process, then:
answer
all the above
question
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
Suppose a firms production function is Q = 0.4K0.5 L0.5. Its level of capital is fixed at 100 units, the price of labor is PL = $4 per unit, and the price of capital is PK = $8 per unit. Given this information, the firms total cost function is:
answer
TC = 800 + Q2/4
question
The total variable cost (TVC) incurred by a firm will depend upon:
answer
all of the above are correct
question
If the total variable cost incurred by producing 9 units of output is $90 and the total variable cost incurred by producing 10 units of output is $120, then:
answer
any cost that does not change as the quantity of output changes
question
If a firms total fixed costs increase, then:
answer
average fixed costs and average total costs will increase
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
Which of the following is not a basic characteristic of a purely competitive market?
answer
the ability of an individual firm to influence the market price
question
The demand curve for a competitive firms good is ______, while the demand curve for a monopolists good is ______.
answer
perfectly elastic, downward sloping
question
The total revenue generated by a perfectly competitive firm:
i. appears graphically as an upward sloping straight line from the origin
ii. increases by a constant amount as the quantity of output produced and sold increases
iii. increases initially, reaches a maximum, and then decreases as the quantity of output produced and sold increases
i. appears graphically as an upward sloping straight line from the origin
ii. increases by a constant amount as the quantity of output produced and sold increases
iii. increases initially, reaches a maximum, and then decreases as the quantity of output produced and sold increases
answer
i and ii
question
The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit applies:
answer
to both perfectly competitive firms and monopolies
question
If a firm is producing at a break-even point, then:
i. total revenue is equal to total cost
ii. total revenue is equal to total variable cost
iii. average revenue is equal to average total cost
iv. average revenue is equal to average variable cost
i. total revenue is equal to total cost
ii. total revenue is equal to total variable cost
iii. average revenue is equal to average total cost
iv. average revenue is equal to average variable cost
answer
i and iii
question
When a firm is maximizing total profit it will necessarily be:
answer
maximizing the difference between total revenue and total cost
question
The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit is known as the:
answer
profit-maximization rule
question
Consider a profit-maximizing firm operating in a perfectly competitive market. If the market price falls below the minimum of the firms average total cost curve but is greater than the minimum of its average variable cost curve, the firm:
answer
will experience a loss but should continue to operate in the short-run
question
A firm that is confronted with fixed costs in the short run should produce versus shut down if the total revenue generated from the sales of its output is sufficient to cover its:
answer
TVC
question
Under which of the following situations would a perfectly competitive firm increase profits by increasing output:
answer
if it were producing a level of output such that MC < MR
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 = 20/Q, its average variable cost function is AVC = 2 + 0.2Q, and it marginal cost function is MC = 2 + 0.4Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the market price of the good is P = $6, then the firm will:
answer
produce 10 units of output and earn a profit of $0
question
Suppose the firms comprising the supply-side of a perfectly competitive market are earning economic profits, creating the incentive for new firms to enter the market and compete. Which of the following best describes the effect on the market resulting from the entry of new firms?
answer
the market supply increases, causing price to decrease and the total output produced and sold to increase
question
A patent or copyright is a barrier to entry based on:
answer
government action to encourage and protect private research and development efforts
question
Municipalities commonly have only one provider of electricity. Such natural monopolies are the result of:
i. a firm owning or controlling a key input used in the production process
ii. long-run total costs declining continuously as output increases
iii. long-run average total costs declining continuously as output increases
iv. economies of scale existing over a wide range of output
i. a firm owning or controlling a key input used in the production process
ii. long-run total costs declining continuously as output increases
iii. long-run average total costs declining continuously as output increases
iv. economies of scale existing over a wide range of output
answer
iii and iv
question
In contrast to firms operating in purely competitive industries, demand curves faced by monopolists are
answer
less elastic at all prices
question
Which of the following is not correct regarding the behavior of monopolies in the marketplace?
answer
all the above
question
The price that a profit maximizing monopolist charges for its product is:
answer
greater than the price that would prevail if the industry were perfectly competitive
question
Like a perfectly competitive firm, if a monopolist wants to know how much it will save by reducing output, it will evaluate its:
answer
marginal cost function
question
For a purely competitive firm _______________; and for a uniform-price monopolist _______________ :
answer
P = MR = AR; P = AR > MR
question
Suppose the demand for a monopolists good is described by the demand function P = 100 - 2Q. It follows that the monopolists total revenue function relating the total revenues (TR) to the quantity sold (Q) is:
answer
TR = 100Q - 2Q2
question
If a monopolist is producing and selling a level of output in the inelastic segment of its demand curve, it can:
answer
all the above
question
Consider a monopolist that employs a uniform pricing strategy, whereby all units are sold for the same price. The price that will result in the maximum total profit is:
answer
the price at which marginal revenue equals marginal cost
question
If the market demand for a monopolists good is not changing over time (i.e., there are no changes in the determinants of demand), then under uniform pricing the monopolist:
answer
must lower price if it wants to sell more units of output versus fewer units of output
question
Under which of the following situations would a monopoly increase its per-period total profits by lowering price and increasing output:
answer
if it were producing a level of output such that MC < MR
question
Consider a monopoly whose total cost function is TC = 10 + 5Q + 2.5Q2 and whose marginal cost function is MC = 5 + 5Q. The demand function for the firms good is P = 115 - 0.25Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the firm uses a uniform pricing strategy, then the firm will:
answer
produce 20 units of output, charge a price of $110, and earn a profit of $1090
question
If a competitive firm or a monopolist is producing a level of output such that P < ATC, it may be concluded that:
answer
it will incur a loss
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