question
Which of the following would be an implicit cost for a firm?
answer
the cost of wages foregone by the owner of the firm
question
Which of the following is most likely to be an implicit cost for Company X?
answer
foregone rent from the building owned and used by Company X
question
To an economist, the economic costs associated with the use of resources include
answer
explicit and implicit costs
question
Economic Profit is
answer
equal to the difference between accounting profit and implicit costs.
question
The main difference between the short run and the long run is that
answer
in the short run, some inputs are fixed and some are variable.
question
Marginal product of labor refers to the
answer
change in total product resulting from employing one more unit of labor.
question
According to the law of diminishing marginal returns
answer
the additional product generated by additional units of an input will eventually diminish.
question
Use the table below to answer this question, which provides information on the production of a product that requires one variable input.
Input Total Product
0 0
1 5
2 20
3 32
4 42
5 50
6 55
7 58
8 58
9 56
With the addition of the second unit of input, the marginal product is ________ and the average product is ________.
Input Total Product
0 0
1 5
2 20
3 32
4 42
5 50
6 55
7 58
8 58
9 56
With the addition of the second unit of input, the marginal product is ________ and the average product is ________.
answer
15; 10
question
Variable costs are
answer
costs that change with the amount of output a firm produces.
question
Fixed Costs are those costs that are
answer
independent of the amount of output a firm produces in the short run
question
Use the following table to answer the next question.
Output Total Cost
0 $10
1 20
2 28
3 38
4 53
5 73
6 98
The total fixed cost of production is
Output Total Cost
0 $10
1 20
2 28
3 38
4 53
5 73
6 98
The total fixed cost of production is
answer
$10
question
Use the following table to answer the next question.
Output Total Cost
0 $10
1 20
2 28
3 38
4 53
5 73
6 98
The total variable cost associated with the production of 5 units of output is
Output Total Cost
0 $10
1 20
2 28
3 38
4 53
5 73
6 98
The total variable cost associated with the production of 5 units of output is
answer
$63
question
Assume that you are the owner of a small bakery in your hometown. Which of the following would be a variable cost of production in the short run?
answer
baking supplies (flour, salt, etc.)
question
At any level of output
answer
average total cost will exceed average variable cost by the amount of the average fixed cost.
question
Average fixed cost
answer
declines continually as output increases
question
Marginal cost can be defined as the change in
answer
total cost resulting from the production of an additional unit of output.
question
The reason the marginal cost curve eventually increases as output increases for the typical firm is because of
answer
diminishing marginal returns.
question
Answer the next question on the basis of the following data.
Output Total Cost
0 $24
1 33
2 41
3 48
4 54
5 61
6 69
The marginal cost associated with the production of the third unit of output is
Output Total Cost
0 $24
1 33
2 41
3 48
4 54
5 61
6 69
The marginal cost associated with the production of the third unit of output is
answer
$7
you solve marginal cost by the change of total cost divided by the change in output. 48-41= 7 /1 =7
you solve marginal cost by the change of total cost divided by the change in output. 48-41= 7 /1 =7
question
Answer the next question on the basis of the following information.
TFC = Total Fixed Cost
MC = Marginal Cost
TVC = Total Variable Cost
Q = Quantity of Output
P = Product Price
Select the marginal cost.
TFC = Total Fixed Cost
MC = Marginal Cost
TVC = Total Variable Cost
Q = Quantity of Output
P = Product Price
Select the marginal cost.
answer
Change in TVC/Change in Q
question
If the short-run average variable cost of production for a firm is decreasing, then it follows that
answer
average variable cost must be greater than marginal cost
question
Which idea is inconsistent with perfect competition?
answer
product differentiation
question
It is a "given" that an individual firm selling in a perfectly competitive market will take the market price because
answer
each producer supplies a negligible fraction of total market.
question
Clara produces and sells tomatoes in a perfectly competitive market. This implies that Clara's marginal revenue generated from selling an additional unit of tomatoes is always equal to
answer
price
question
If a firm operating in a perfectly competitive industry is confronted with an equilibrium market price of $5, its marginal revenue
answer
will also be $5
question
A perfectly competitive firm trying to maximize profits in the short run will expand output
answer
as long as marginal revenue is greater than marginal cost.
question
A perfectly competitive firm's output is currently such that its marginal revenue is $5 and marginal cost is $4. Assuming profit maximization, the firm should
answer
leave price unchanged and increase output
question
Use the table below to answer the next question for a perfectly competitive firm.
output Total Reveue Total Cost
0 $0 $50
1 40 74
2 80 94
3 120 117
4 160 142
5 200 172
The marginal revenue generated from the third unit of output is
output Total Reveue Total Cost
0 $0 $50
1 40 74
2 80 94
3 120 117
4 160 142
5 200 172
The marginal revenue generated from the third unit of output is
answer
$40
120-80=40
120-80=40
question
Assume the price of a product sold by a perfectly competitive firm is $5. Given the data in the accompanying table, at what output level is total profit highest in the short run?
Output Total Cost
20 $70
25 75
30 85
35 100
40 125
45 155
50 190
Output Total Cost
20 $70
25 75
30 85
35 100
40 125
45 155
50 190
answer
40
question
A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 1,000 units is $2.50. The minimum possible average variable cost is $2. The market price of the product is $2.50. To maximize profits, the firm should
answer
continue producing 1,000 units.
question
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output level of 800 units is $3.50. The minimum possible average variable cost is $3. The market price of the product is $4. To maximize profits, the firm should
answer
increase production to more than 800 units.
question
A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 500 units is $1.50. The minimum possible average variable cost is $1. The market price of the product is $1.25. To maximize profits, the firm should
answer
decrease production to less than 500 units.
question
T-Shirt Enterprises is operating in a perfectly competitive market. It is producing 3,000 t-shirts and selling them for $10 each. At this level of output, the average total cost is $10.50 and the average variable cost is $10.20. Based on these data, the firm should
answer
shut down in the short run.
question
The table below shows cost data for a perfectly competitive firm.
Output AVC MC ATC
0 - - -
2 2.50 27.50 2.5
4 2.00 14.50 1.5
6 2.00 10.33 2.0
8 2.13 8.38 2.5
10 2.30 7.30 3.0
12 2.50 6.67 3.5
14 3.00 6.57 6.0
16 4.00 7.13 11.0
The firm will produce output in the short run only if the market price is at least equal to
Output AVC MC ATC
0 - - -
2 2.50 27.50 2.5
4 2.00 14.50 1.5
6 2.00 10.33 2.0
8 2.13 8.38 2.5
10 2.30 7.30 3.0
12 2.50 6.67 3.5
14 3.00 6.57 6.0
16 4.00 7.13 11.0
The firm will produce output in the short run only if the market price is at least equal to
answer
2.00
question
The short-run supply curve for a perfectly competitive firm is the
answer
segment of the MC curve lying at and above the AVC curve.
question
The short-run supply curve of a perfectly competitive firm is based primarily on its
answer
MC curve
question
One defining characteristic of pure monopoly is that the
answer
monopoly produces a product with no close substitutes.
question
A pure monopoly may generate economic profits because
answer
of barriers to entry
question
The demand curve faced by a nondiscriminating pure monopoly is
answer
the same as the industry's demand curve.
question
A pure monopoly can sell 20 toys per day for $8 each. To sell 21 toys per day, the price must be cut to $7. The marginal revenue of the 21st toy is
answer
-$13
question
For a pure monopoly to sell a quantity of 10 units, the price must be $8. Marginal revenue (MR) at this output level will be
answer
<$8
question
Use the following table to answer the next question.
Price Quantity Demanded
$7 1
6 2
5 3
4 4
3 5
The marginal revenue generated by the pure monopoly from selling the third unit of output is
Price Quantity Demanded
$7 1
6 2
5 3
4 4
3 5
The marginal revenue generated by the pure monopoly from selling the third unit of output is
answer
$3
question
Answer the next question based on the following demand and cost data faced by a pure monopolist.
Demand Data ----- Cost Data
Price Quantity | Output TC
Demanded |
$2.75 3 3 $4.00
2.50 4 4 4.50
2.25 5 5 4.75
2.00 6 6 5.75
1.75 7 7 7.75
The profit-maximizing price for the pure monopoly will be
Demand Data ----- Cost Data
Price Quantity | Output TC
Demanded |
$2.75 3 3 $4.00
2.50 4 4 4.50
2.25 5 5 4.75
2.00 6 6 5.75
1.75 7 7 7.75
The profit-maximizing price for the pure monopoly will be
answer
$2.25
question
Answer the next question based on the following demand and cost data faced by a pure monopoly.
Demand Data ----- Cost Data
Price Quantity | Output TC
Demanded |
$2.75 3 3 $4.00
2.50 4 4 4.50
2.25 5 5 4.75
2.00 6 6 5.75
1.75 7 7 7.75
At equilibrium, the pure monopoly will generate
Demand Data ----- Cost Data
Price Quantity | Output TC
Demanded |
$2.75 3 3 $4.00
2.50 4 4 4.50
2.25 5 5 4.75
2.00 6 6 5.75
1.75 7 7 7.75
At equilibrium, the pure monopoly will generate
answer
an economic profit of $6.50
question
At the profit-maximizing level of output for a pure monopoly
answer
price is greater than marginal cost
question
Suppose that a pure monopoly calculates that at its present output level, marginal revenue is $1 and marginal cost is $2. The monopoly could maximize profits or minimize losses by
answer
increasing price and decreasing output
question
Many people believe that pure monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing pure monopoly occurs where
answer
marginal revenue equals marginal cost.
question
The data below relates to a pure monopoly and the product it produces.
Price Quantity Total Cost
22 0 20
20 1 24
18 2 27
16 3 32
14 4 39
12 5 48
10 6 59
What is the profit-maximizing output and price for this firm?
Price Quantity Total Cost
22 0 20
20 1 24
18 2 27
16 3 32
14 4 39
12 5 48
10 6 59
What is the profit-maximizing output and price for this firm?
answer
P=$14; Q=4
question
A pure monopoly will generate an economic profit whenever
answer
total revenue is greater than total cost.
question
Pure monopolies are said to be allocatively inefficient because
answer
price is greater than marginal cost.
question
One argument for having the government regulate natural monopolies is that without regulation
answer
these monopolies produce at a level where price is greater than marginal cost
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