question

If a firm is producing the level of output at which short-run average cost equals long-run average cost, then

answer

-both a and b

-the firm has chosen the profit-maximizing level of output.

-with a fixed amount of capital, short-run average cost is greater than long-run average cost at any other level of output.

-the firm has chosen the profit-maximizing level of output.

-with a fixed amount of capital, short-run average cost is greater than long-run average cost at any other level of output.

question

Refer to the following graph. The price of labor is $3 per unit:

What is the minimum cost of producing 100 units of output?

What is the minimum cost of producing 100 units of output?

answer

$105

question

Refer to the following figure. The price of capital is $50 per unit:

What is the minimum cost of producing 400 units of output?

What is the minimum cost of producing 400 units of output?

answer

$5,000

question

If the price of labor is $5 and the price of capital is $10, what is the marginal rate of technical substitution at the optimal input choice?

answer

0.5

question

Which of the following is FALSE?

answer

A change in input prices shifts the isoquant map.

question

A producer is hiring 20 units of labor and 6 units of capital (bundle A). The price of labor is $10, the price of capital is $2, and at A, the marginal products of labor and capital are both equal to 20. The producer

answer

should use more capital and less labor.

question

Which of the following statements is true?

answer

In the long run a firm is making the optimal input choice when the marginal rate of technical substitution is equal to the input price ratio.

question

In the above graph, the shift from I to II was due to

answer

a decrease in the price of capital.

question

In the graph below, the price of capital is $500 per unit. Given a total cost of $50,000, the maximum amount of output possible is

answer

10,000 units of output.

question

Which of the following are characteristics of a typical isoquant?

answer

-both a and b

-The marginal rate of technical substitution decreases as more labor is substituted for less capital.

-All input combinations on the isoquant will produce the same level of output.

-The marginal rate of technical substitution decreases as more labor is substituted for less capital.

-All input combinations on the isoquant will produce the same level of output.

question

Learning economies differ from economies of scale because

answer

the former involves cumulative production and the latter involves rate of production per period.

question

In the following graph, the price of capital is $100 per unit. Which of the following combinations of capital and labor lies on the expansion path?

answer

20 K, 60 L

question

In the following graph, the price of labor is $15 per unit. The minimum cost of producing 1,000 units of output is:

answer

none of the above

question

In the long run

answer

a firm is making the optimal input choice when the marginal rate of technical substitution is equal to the input price ratio.

question

In the above graph, what is the marginal rate of technical substitution at point D?

answer

less than 1.5

question

Refer to the following graph. The price of capital ( r) is $20.

Why wouldn't the firm choose to produce 5,000 units of output with the combination at A?

Why wouldn't the firm choose to produce 5,000 units of output with the combination at A?

answer

none of the above

question

Refer to the following graph. The price of capital ( r) is $20.

If, at the optimal combination of inputs for producing 14,000 units of output, the marginal product of capital is 40, what is the marginal product of labor?

If, at the optimal combination of inputs for producing 14,000 units of output, the marginal product of capital is 40, what is the marginal product of labor?

answer

60

question

Diseconomies of scale

answer

exist when long-run average cost increases as output increases.

question

In the following graph, the price of capital is $100 per unit; the price of labor is $25 per unit. How much does the seventh unit of output add to total cost?

answer

$400

question

In the graph below, the price of capital is $500 per unit. How many units of labor should a firm use in order to produce 30,000 units of output at the lowest possible cost?

answer

300 units of labor

question

In a perfectly competitive market

answer

none of the above

question

Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be:

Demand: Qd = 10,000 − 10,000 P + 1.0 M

Supply: Qs = 80,000 + 10,000 P − 4,000 PI

where Q is quantity, P is the price of the product, M is income, and PI is the input price. The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and PI for 2015: = $50,000 and I = $20The manager also estimates the average variable cost function to be

AVC = 3.0 − 0.0027 Q + 0.0000009 Q 2

Total fixed costs will be $2,000 in 2015.

The optimal level of production for the firm is

Demand: Qd = 10,000 − 10,000 P + 1.0 M

Supply: Qs = 80,000 + 10,000 P − 4,000 PI

where Q is quantity, P is the price of the product, M is income, and PI is the input price. The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and PI for 2015: = $50,000 and I = $20The manager also estimates the average variable cost function to be

AVC = 3.0 − 0.0027 Q + 0.0000009 Q 2

Total fixed costs will be $2,000 in 2015.

The optimal level of production for the firm is

answer

2,000

question

Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts product price to be $28 in 2015. Bartech's average variable cost function is estimated to be

AVC = 10 − 0.003 Q + 0.0000005 Q 2

Bartech expects to face fixed costs of $12,000 in 2015.

The profit-maximizing (or loss-minimizing) output for Bartech is

AVC = 10 − 0.003 Q + 0.0000005 Q 2

Bartech expects to face fixed costs of $12,000 in 2015.

The profit-maximizing (or loss-minimizing) output for Bartech is

answer

6,000 units

question

Suits Only, a dry cleaning firm that specializes in cleaning business suits, operates in a perfectly competitive market. Robin Smith, an exceptionally talented manager, has been hired to manage Suits Only. In the dry cleaning business, a manager typically makes a salary of $400 per week. Suits Only faces the long-run average and marginal costs shown in the figure below. In long-run competitive equilibrium, the market price for cleaning a business suit is $4.50.

Given the above, if Robin Smith buys Suits Only and continues to manage it herself, she will

Given the above, if Robin Smith buys Suits Only and continues to manage it herself, she will

answer

-both a and b.

-earn zero economic profit.

-earn $75 in economic rent per week.

-earn zero economic profit.

-earn $75 in economic rent per week.

question

Which of the following is NOT a characteristic of an increasing cost competitive industry? As the industry expands in the long run,

answer

the price of product remains constant.

question

The figure above shows cost curves for a perfectly competitive firm. Suppose that market price is $2.60. A firm producing 800 units of output

answer

should produce 1100 units of output instead, to earn profits of $1,100.

question

A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:

Qd = 25,000 − 5,000 P + 25 M

Qs = 240,000 + 5,000 P − 2,000 PI

where P is price, M is income, and PI is the price of a key input. The forecasts for the next year are = $15,000 and I = $20. Average variable cost is estimated to be

AVC = 14 − 0.008 Q + 0.000002 Q 2

Total fixed cost will be $6,000 next year. What is the profit-maximizing output choice for the firm?

Qd = 25,000 − 5,000 P + 25 M

Qs = 240,000 + 5,000 P − 2,000 PI

where P is price, M is income, and PI is the price of a key input. The forecasts for the next year are = $15,000 and I = $20. Average variable cost is estimated to be

AVC = 14 − 0.008 Q + 0.000002 Q 2

Total fixed cost will be $6,000 next year. What is the profit-maximizing output choice for the firm?

answer

3,000 units

question

The figure above shows cost curves for a perfectly competitive firm. If market price is $0.70, a profit-maximizing firm will produce ________ units of output and earn profits of ________.

answer

zero, -$400

question

Radon Research Corporation (RRC) is one of 24 firms in Albuquerque testing homes for dangerous levels of radon gas. There is a standard test that all testing companies use. The manager of RRC wants to know the number of homes to test in 2015 in order to maximize the firm's profit. The manager forecasted a price of $160 for radon tests in 2015. The firm's marginal cost was estimated as

SMC = 200 − 15Q + 0.8 Q 2

where Q is the number of tests performed each week. RRC's fixed cost will be $250 per week. How many radon tests per week should be undertaken?

SMC = 200 − 15Q + 0.8 Q 2

where Q is the number of tests performed each week. RRC's fixed cost will be $250 per week. How many radon tests per week should be undertaken?

answer

15.5

question

The graph above shows cost curves for a perfectly competitive firm. The firm will break even if price is:

answer

$3.90

question

The graph below on the left shows the short-run marginal cost curve for a typical firm selling in a perfectly competitive industry. The graph on the right shows current industry demand and supply.

What output should the firm produce?

What output should the firm produce?

answer

200

question

In order to minimize losses in the short run, a perfectly competitive firm should shut down if

answer

total revenue is less than total variable cost.

question

A consulting company estimated market demand and supply in a perfectly competitive industry and obtained the following results:

Qd = 25,000 − 5,000 P + 25 M

Qs = 240,000 + 5,000 P − 2,000 PI

where P is price, M is income, and PI is the price of a key input. The forecasts for the next year are ̂ = $15,000 and I = $20. Average variable cost is estimated to be

AVC = 14 − 0.008 Q + 0.000002 Q 2

Total fixed cost will be $6,000 next year. What is the price forecast for next year?

Qd = 25,000 − 5,000 P + 25 M

Qs = 240,000 + 5,000 P − 2,000 PI

where P is price, M is income, and PI is the price of a key input. The forecasts for the next year are ̂ = $15,000 and I = $20. Average variable cost is estimated to be

AVC = 14 − 0.008 Q + 0.000002 Q 2

Total fixed cost will be $6,000 next year. What is the price forecast for next year?

answer

$20

question

Below, the graph on the left shows long-run average and marginal cost for a typical firm in a perfectly competitive industry. The graph on the right shows demand and long-run supply for an increasing-cost industry.

How much profit will the firm earn?

How much profit will the firm earn?

answer

$6,000

question

A firm in a competitive industry faces a market price for output of $25 and a wage rate of $750. At the current level of employment (50 units of labor), the marginal product of labor is 20. In order to maximize profit, the firm should

answer

hire less labor because hiring the last unit of labor decreased profit by 250.

question

The table below shows a competitive firm's short-run production function. Labor is the firm's only variable input, and market price for the firm's product is $2 per unit.

If market price for the firm's product increases to $5, how many units of labor will the firm employ at a wage rate of $200?

If market price for the firm's product increases to $5, how many units of labor will the firm employ at a wage rate of $200?

answer

5

question

Bartech, Inc. is a firm operating in a competitive market. The manager of Bartech forecasts product price to be $28 in 2015. Bartech's average variable cost function is estimated to be

AVC = 10 − 0.003 Q + 0.0000005 Q 2

Bartech expects to face fixed costs of $12,000 in 2015.

At what level of output will Bartech's average variable cost reach its minimum value?

AVC = 10 − 0.003 Q + 0.0000005 Q 2

Bartech expects to face fixed costs of $12,000 in 2015.

At what level of output will Bartech's average variable cost reach its minimum value?

answer

3,000 units

question

Suits Only, a dry cleaning firm that specializes in cleaning business suits, operates in a perfectly competitive market. Robin Smith, an exceptionally talented manager, has been hired to manage Suits Only. In the dry cleaning business, a manager typically makes a salary of $400 per week. Suits Only faces the long-run average and marginal costs shown in the figure below. In long-run competitive equilibrium, the market price for cleaning a business suit is $4.50.

Given the above, the typical dry-cleaning firm has a minimum long-run average cost of cleaning a business suit equal to ________ and the typical dry cleaning firm earns economic profit equal to ________.

Given the above, the typical dry-cleaning firm has a minimum long-run average cost of cleaning a business suit equal to ________ and the typical dry cleaning firm earns economic profit equal to ________.

answer

$4.50, $0

question

Consider a competitive industry and a price-taking firm that produces in that industry. The market demand and supply functions are estimated to be: Demand:

Qd = 10,000 − 10,000 P + 1.0 M

Supply:

Qs = 80,000 + 10,000 P − 4,000 PI

where Q is quantity, P is the price of the product, M is income, and PI is the input price. The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and PI for 2015: = $50,000 and I = $20The manager also estimates the average variable cost function to be

AVC = 3.0 − 0.0027 Q + 0.0000009 Q 2

Total fixed costs will be $2,000 in 2015. The minimum value of average variable cost is ________.

Qd = 10,000 − 10,000 P + 1.0 M

Supply:

Qs = 80,000 + 10,000 P − 4,000 PI

where Q is quantity, P is the price of the product, M is income, and PI is the input price. The manager of the perfectly competitive firm uses time-series data to obtain the following forecasted values of M and PI for 2015: = $50,000 and I = $20The manager also estimates the average variable cost function to be

AVC = 3.0 − 0.0027 Q + 0.0000009 Q 2

Total fixed costs will be $2,000 in 2015. The minimum value of average variable cost is ________.

answer

$0.975

question

A competitive firm will maximize profit by hiring the amount of an input at which

answer

the last unit of the input hired adds the same amount to total revenue as to total cost.

question

The market demand for a monopoly firm is estimated to be:

Qd = 100,000 - 500 P + 2 M + 500 PR

where Qd is quantity demanded, P is price, M is income, and PR is the price of a related good. The manager has forecasted the values of M and PR will be $50,000 and $20, respectively, in 2016. The average variable cost function is estimated to be

AVC = 520 - 0.03 Q + 0.000001 Q 2

Total fixed cost in 2015 is expected to be $4 million. The manager should ________ because________.

Qd = 100,000 - 500 P + 2 M + 500 PR

where Qd is quantity demanded, P is price, M is income, and PR is the price of a related good. The manager has forecasted the values of M and PR will be $50,000 and $20, respectively, in 2016. The average variable cost function is estimated to be

AVC = 520 - 0.03 Q + 0.000001 Q 2

Total fixed cost in 2015 is expected to be $4 million. The manager should ________ because________.

answer

operate; P = $560 > AVC = $320

question

Which of the following is true of a monopolist in the long run?

answer

-both a and b

-The firm will charge a price that is equal to or greater than long-run average cost.

-The firm will charge a price that is higher than long-run marginal cost.

-The firm will charge a price that is equal to or greater than long-run average cost.

-The firm will charge a price that is higher than long-run marginal cost.

question

The figure above shows the demand and cost conditions for a firm with two plants. In order to maximize profit, how many units of output should the firm produce?

answer

30

question

Monopolistic competition is similar to perfect competition in that:

answer

there are a large number of firms

question

In a monopolistically competitive market,

answer

-both a and c

-a firm has market power because it produces a differentiated product.

-there are a large number of firms.

-a firm has market power because it produces a differentiated product.

-there are a large number of firms.

question

A radio manufacturer has two plants — one in Taiwan and one in California. At the current allocation of total output between the two plants, the last unit of output produced in the Taiwan plant added $8 to total cost, while the last unit of output produced in the California plant added $6 to total cost. In order to maximize profit, the firm should

answer

switch some output from the Taiwan to the California plant.

question

Refer to the following figure showing demand and marginal revenue for a monopoly.

At any price above $________ demand is elastic.

At any price above $________ demand is elastic.

answer

$15

question

A firm with two plants, A and B, has the following estimated demand and marginal cost functions:

Qd = 120 - 10 P

MCA = 4 + (1 / 5) QA

MCB = 6 + (1 / 10) QB

What is the firm's marginal revenue function?

Qd = 120 - 10 P

MCA = 4 + (1 / 5) QA

MCB = 6 + (1 / 10) QB

What is the firm's marginal revenue function?

answer

MR = 12 - (1/5) Q

question

A price-setting firm faces the following estimated demand and average variable cost functions:

Qd = 800,000 - 2,000 P + 0.7 M + 4,000 PR

AVC = 500 - 0.03 Q + 0.000001 Q 2

where Qd is the quantity demanded, P is price, M is income, and PR is the price of a related good. The firm expects income to be $40,000 and PR to be $53. Total fixed cost is $2,600,000.

What is the estimated demand function for the firm?

Qd = 800,000 - 2,000 P + 0.7 M + 4,000 PR

AVC = 500 - 0.03 Q + 0.000001 Q 2

where Qd is the quantity demanded, P is price, M is income, and PR is the price of a related good. The firm expects income to be $40,000 and PR to be $53. Total fixed cost is $2,600,000.

What is the estimated demand function for the firm?

answer

Qd = 1,040,000 - 2,000 P

question

A price-setting firm faces the following estimated demand and average variable cost functions:

Qd = 800,000 - 2,000 P + 0.7 M + 4,000 P

RAVC = 500 - 0.03 Q + 0.000001 Q 2

where Qd is the quantity demanded, P is price, M is income, and PR is the price of a related good. The firm expects income to be $40,000 and PR to be $53.

Total fixed cost is $2,600,000. The firm should ________ because ________.

Qd = 800,000 - 2,000 P + 0.7 M + 4,000 P

RAVC = 500 - 0.03 Q + 0.000001 Q 2

where Qd is the quantity demanded, P is price, M is income, and PR is the price of a related good. The firm expects income to be $40,000 and PR to be $53.

Total fixed cost is $2,600,000. The firm should ________ because ________.

answer

operate, P = $510 > AVC = $300

question

A firm with market power

answer

-both a and b

-can increase price without losing all sales.

-faces a downward-sloping demand curve.

-can increase price without losing all sales.

-faces a downward-sloping demand curve.

question

A price-setting firm faces the following estimated demand and average variable cost functions:

Qd = 800,000 - 2,000 P + 0.7 M + 4,000 PR

AVC = 500 - 0.03 Q + 0.000001 Q 2

where Qd is the quantity demanded, P is price, M is income, and PR is the price of a related good. The firm expects income to be $40,000 and PR to be $53.

Total fixed cost is $2,600,000. What price should the firm charge in order to maximize profit?

Qd = 800,000 - 2,000 P + 0.7 M + 4,000 PR

AVC = 500 - 0.03 Q + 0.000001 Q 2

where Qd is the quantity demanded, P is price, M is income, and PR is the price of a related good. The firm expects income to be $40,000 and PR to be $53.

Total fixed cost is $2,600,000. What price should the firm charge in order to maximize profit?

answer

510

question

Suppose that a profit-maximizing monopolist has a plant of optimal size and is producing a level of output at which price is $30, average total cost is $55, and average fixed cost is $40. The firm should

answer

-operate in the short run.

-shut down in the short run

- both a and c

-shut down in the short run

- both a and c

question

The market demand for a monopoly firm is estimated to be:

Qd = 100,000 - 500 P + 2 M + 500 PR

where Qd is quantity demanded, P is price, M is income, and PR is the price of a related good. The manager has forecasted the values of M and PR will be $50,000 and $20, respectively, in 2016. The average variable cost function is estimated to be

AVC = 520 - 0.03 Q + 0.000001 Q 2Total fixed cost in 2016 is expected to be $4 million.

The profit-maximizing price for 2016 is

Qd = 100,000 - 500 P + 2 M + 500 PR

where Qd is quantity demanded, P is price, M is income, and PR is the price of a related good. The manager has forecasted the values of M and PR will be $50,000 and $20, respectively, in 2016. The average variable cost function is estimated to be

AVC = 520 - 0.03 Q + 0.000001 Q 2Total fixed cost in 2016 is expected to be $4 million.

The profit-maximizing price for 2016 is

answer

$560.

question

A monopoly is producing a level of output at which price is $80, marginal revenue is $40, average total cost is $100, marginal cost is $40, and average fixed cost is $10. In order to maximize profit, the firm should

answer

shut down.

question

The market demand for a monopoly firm is estimated to be:

Qd = 100,000 - 500 P + 2 M + 500 PR

where Qd is quantity demanded, P is price, M is income, and PR is the price of a related good. The manager has forecasted the values of M and PR will be $50,000 and $20, respectively, in 2016.

For 2016, the forecasted demand function is

Qd = 100,000 - 500 P + 2 M + 500 PR

where Qd is quantity demanded, P is price, M is income, and PR is the price of a related good. The manager has forecasted the values of M and PR will be $50,000 and $20, respectively, in 2016.

For 2016, the forecasted demand function is

answer

Qd = 300,000 - 500 P

question

A firm with two plants, A and B, has the following estimated demand and marginal cost functions:

Qd = 120 - 10 P

MCA = 4 + (1 / 5) QA

MCB = 6 + (1 / 10) QB

What is the profit-maximizing price?

Qd = 120 - 10 P

MCA = 4 + (1 / 5) QA

MCB = 6 + (1 / 10) QB

What is the profit-maximizing price?

answer

9.50

question

In order to maximize profit, a firm that produces its output in two plants will produce the level of total output at which the last unit of output produced adds the same amount to total revenue as to the

answer

firm's total cost

question

A firm with market power faces the following estimated demand and average variable cost functions

:Qd = 39,000 - 500 P + 0.4 M - 8,000 PR

AVC = 30 - 0.005 Q + 0.0000005 Q 2

where Qd is quantity demanded, P is price, M is income, and PR is the price of a related good. The firm expects income to be $40,000 and PR to be $2.

Total fixed cost is $100,000. What is the firm's profit?

:Qd = 39,000 - 500 P + 0.4 M - 8,000 PR

AVC = 30 - 0.005 Q + 0.0000005 Q 2

where Qd is quantity demanded, P is price, M is income, and PR is the price of a related good. The firm expects income to be $40,000 and PR to be $2.

Total fixed cost is $100,000. What is the firm's profit?

answer

$220,000

question

The market demand for a monopoly firm is estimated to be:

Qd = 100,000 - 500 P + 2 M + 500 PR

where Qd is quantity demanded, P is price, M is income, and PR is the price of a related good. The manager has forecasted the values of M and P R will be $50,000 and $20, respectively, in 2016.

For 2016, the marginal revenue function is

Qd = 100,000 - 500 P + 2 M + 500 PR

where Qd is quantity demanded, P is price, M is income, and PR is the price of a related good. The manager has forecasted the values of M and P R will be $50,000 and $20, respectively, in 2016.

For 2016, the marginal revenue function is

answer

MR = 600 - 0.004 Q.