Econ Unit 3 Test Prep - Assignment Essays

question

In the absence of barriers to entry, a typical firm is currently in long-run equilibrium. Assume there is an increase in the market demand for the good that the firm is producing. Which of the following will happen in the long run?

answer

New firms will enter the market.

question

In the short run, which of the following must be true for a perfectly competitive firm that is maximizing profits?

answer

The firm will produce where MR = MC as long as P is greater than average variable cost.

question

At its current level of output, a firm’s total revenue is greater than its total variable cost but less than its total cost. If the firm is producing at the point where marginal revenue is equal to marginal cost, what should the firm do to maximize profit in the short run?

answer

Continue to produce at its current level of output to minimize losses.

question

The graph above shows a firm’s long-run average total cost curve (LRATC). Which of the following statements is true as the firm increases its scale of production?

answer

For output levels above Q1, the firm experiences diseconomies of scale.

question

Assume a firm doubles its usage of each input, resulting in a doubling of the firm’s output. Which of the following describes this result?

answer

Constant returns to scale

question

Which of the following explains the difference between short-run and long-run costs?

answer

All costs are variable in the long run but not in the short run.

question

Assume a competitive firm is producing where price (P) and marginal revenue (MR) are greater than marginal cost (MC) and average variable cost (AVC). Which of the following is true regarding the firm’s short-run output level?

answer

The firm is producing too little and should increase its output level until P =MR=MC

question

price is P0 and the firm is producing at quantity Q2. To maximize profit, the firm should

answer

produce quantity Q1, where price is equal to marginal cost

question

When a competitive firm maximizes short-run economic profits, it produces at the output level where

answer

marginal revenue equals marginal cost

question

Which of the following statements regarding accounting profits, opportunity costs, and economic profits is true?

answer

If accounting profits are less than opportunity costs, there will be economic losses.

question

Assume Nadia voluntarily leaves a job with a salary of $100 per day to open and run a restaurant instead. After deducting all explicit costs from the restaurant revenues, Nadia has a gain of $120. Assuming there are no additional implicit costs, which of the following statements is true?

answer

Nadia has an economic profit of $20.

question

Ryan quit a job with a daily salary and opened a business. On a daily basis, the total revenue of the business is $200, and the explicit costs of the business are $120. If Ryan has zero economic profits, what must be the value of Ryan’s implicit costs?

answer

$80

1 of 12

question

answer

New firms will enter the market.

question

In the short run, which of the following must be true for a perfectly competitive firm that is maximizing profits?

answer

The firm will produce where MR = MC as long as P is greater than average variable cost.

question

answer

Continue to produce at its current level of output to minimize losses.

question

The graph above shows a firm’s long-run average total cost curve (LRATC). Which of the following statements is true as the firm increases its scale of production?

answer

For output levels above Q1, the firm experiences diseconomies of scale.

question

Assume a firm doubles its usage of each input, resulting in a doubling of the firm’s output. Which of the following describes this result?

answer

Constant returns to scale

question

Which of the following explains the difference between short-run and long-run costs?

answer

All costs are variable in the long run but not in the short run.

question

answer

The firm is producing too little and should increase its output level until P =MR=MC

question

price is P0 and the firm is producing at quantity Q2. To maximize profit, the firm should

answer

produce quantity Q1, where price is equal to marginal cost

question

When a competitive firm maximizes short-run economic profits, it produces at the output level where

answer

marginal revenue equals marginal cost

question

Which of the following statements regarding accounting profits, opportunity costs, and economic profits is true?

answer

If accounting profits are less than opportunity costs, there will be economic losses.

question

answer

Nadia has an economic profit of $20.

question

answer

$80

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