question
A firm in a competitive industry will try to produce the output level for which
a. average variable cost is at a minimum.
b. average total cost is at a minimum.
c. average fixed cost is at a minimum.
d. marginal cost equals marginal revenue.
a. average variable cost is at a minimum.
b. average total cost is at a minimum.
c. average fixed cost is at a minimum.
d. marginal cost equals marginal revenue.
answer
d. marginal cost equals marginal revenue.
The firm will always try to equate marginal cost with marginal revenue. As long as the sale of an additional unit increases marginal revenue more then marginal cost, the firm will expand its output.
The firm will always try to equate marginal cost with marginal revenue. As long as the sale of an additional unit increases marginal revenue more then marginal cost, the firm will expand its output.
question
Examine the graph below. If the price for this firm's product is $40, and the firm is maximizing profits, what is the firm's total revenue? Assume that the firm is a price taker.
a. $3750
b. $2000
c. $6000
d. $10000
a. $3750
b. $2000
c. $6000
d. $10000
answer
c. $6000
If the price is $40, the firm maximizes its profit at the level at which MC = MR. This output level is 150 units. It's total revenue is pxq or $40 × 150 = $6000.
If the price is $40, the firm maximizes its profit at the level at which MC = MR. This output level is 150 units. It's total revenue is pxq or $40 × 150 = $6000.
question
A profit-maximizing competitive firm sells its product for $9. Its average total cost of producing this product is $10. The firm's profit maximizing output level is 10 units. How much total profit does this firm earn?
a. $200
b. −$200
c. −$10
d. None of the above.
a. $200
b. −$200
c. −$10
d. None of the above.
answer
c. −$10
The firm's average total cost is $1 more than the price of the product. The firm takes a $1 loss on each unit for a total loss of $10.
The firm's average total cost is $1 more than the price of the product. The firm takes a $1 loss on each unit for a total loss of $10.
question
The portion of a firm's marginal cost curve that is above the average variable cost curve is
a. the firm's long run supply curve.
b. the firm's short run supply curve.
c. the firm's short run demand curve.
d. the firm's long run demand curve.
a. the firm's long run supply curve.
b. the firm's short run supply curve.
c. the firm's short run demand curve.
d. the firm's long run demand curve.
answer
b. the firm's short run supply curve.
The marginal cost curve above the average variable cost indicates the firm's willingness to supply a good at every price. This curve is essentially the firm's supply curve. Since the firm would shut down at any price less than the average variable cost, the portion of the marginal cost curve below the AVC is irrelevant as a supply curve.
The marginal cost curve above the average variable cost indicates the firm's willingness to supply a good at every price. This curve is essentially the firm's supply curve. Since the firm would shut down at any price less than the average variable cost, the portion of the marginal cost curve below the AVC is irrelevant as a supply curve.
question
Examine the graph below. At point A,
a. marginal cost is greater than marginal revenue.
b. marginal revenue is greater than marginal cost.
c. marginal revenue equals marginal cost.
d. marginal revenue is greater than the price.
a. marginal cost is greater than marginal revenue.
b. marginal revenue is greater than marginal cost.
c. marginal revenue equals marginal cost.
d. marginal revenue is greater than the price.
answer
b. marginal revenue is greater than marginal cost.
Marginal revenue, or the change in total revenue from another unit of output, is the same as the price. At point a, marginal revenue is greater than marginal cost, or the cost of producing an additional unit.
Marginal revenue, or the change in total revenue from another unit of output, is the same as the price. At point a, marginal revenue is greater than marginal cost, or the cost of producing an additional unit.
question
What is profit?
a. Profit is the difference between total cost (TC) and total revenue (TR).
b. Profit is the difference between average total cost (ATC) and average total revenue (ATR).
c. Profit is the number of units sold times the price per unit.
d. Profit is the same as total revenue (TR).
a. Profit is the difference between total cost (TC) and total revenue (TR).
b. Profit is the difference between average total cost (ATC) and average total revenue (ATR).
c. Profit is the number of units sold times the price per unit.
d. Profit is the same as total revenue (TR).
answer
a. Profit is the difference between total cost (TC) and total revenue (TR).
Total revenue (TR) is the income a firm receives when it sells its output. Profit is what is left of TR after the firm pays the total costs, all of the expenses it incurred in producing the output.
Total revenue (TR) is the income a firm receives when it sells its output. Profit is what is left of TR after the firm pays the total costs, all of the expenses it incurred in producing the output.
question
In a competitive market, if firms are required to put safety latches on tool boxes to meet government regulations, their costs increase. It is likely that
a. demand for the tool boxes falls.
b. the market supply curve shifts to the right.
c. the market supply curve shifts to the left.
d. long run economic profit falls.
a. demand for the tool boxes falls.
b. the market supply curve shifts to the right.
c. the market supply curve shifts to the left.
d. long run economic profit falls.
answer
c. the market supply curve shifts to the left.
When costs increase because of government regulations, firms decrease supply at every price. This change is a shift to the left.
When costs increase because of government regulations, firms decrease supply at every price. This change is a shift to the left.
question
Producing 50,000 widgets costs the firm $250,000. The marginal cost of the 50,001st widget is $3. The price of widgets is $4. Should the firm shut down?
a. Yes, because the price of widgets is less than the cost to produce them.
b. No, because the marginal cost of the 50,001st widget is less than the price of widgets.
c. No, because the price of widgets is sure to rise.
d. There is not enough information given to answer the question.
a. Yes, because the price of widgets is less than the cost to produce them.
b. No, because the marginal cost of the 50,001st widget is less than the price of widgets.
c. No, because the price of widgets is sure to rise.
d. There is not enough information given to answer the question.
answer
d. There is not enough information given to answer the question.
In order to determine whether or not the firm should shut down, we need to know how the $250,000 is divided between fixed costs (FC) and variable costs (VC). If the average variable cost (AVC) is greater than $4, the firm should shut down.
In order to determine whether or not the firm should shut down, we need to know how the $250,000 is divided between fixed costs (FC) and variable costs (VC). If the average variable cost (AVC) is greater than $4, the firm should shut down.
question
Monopolistic competition is an industry structure in which
a. all firms sell the same product.
b. each firm has to react to what the others do.
c. each firm tries to gain market power by slightly differentiating a similar product.
d. the market has significant barriers to entry.
a. all firms sell the same product.
b. each firm has to react to what the others do.
c. each firm tries to gain market power by slightly differentiating a similar product.
d. the market has significant barriers to entry.
answer
c. each firm tries to gain market power by slightly differentiating a similar product.
Firms try to convince consumers that their product is unique from similar products. If it is successful, it can exercise a mild form of monopoly.
Firms try to convince consumers that their product is unique from similar products. If it is successful, it can exercise a mild form of monopoly.
question
Which of the following is an opportunity (implicit) cost?
a. Tom buys $100 of material for his business.
b. Tom pays the electricity bill he received.
c. Tom pays his income taxes.
d. Tom, who could work for another business, works for himself.
a. Tom buys $100 of material for his business.
b. Tom pays the electricity bill he received.
c. Tom pays his income taxes.
d. Tom, who could work for another business, works for himself.
answer
d. Tom, who could work for another business, works for himself.
The opportunity cost is the salary Tom could make working elsewhere. He chooses to work for himself.
The opportunity cost is the salary Tom could make working elsewhere. He chooses to work for himself.
question
For a competitive firm, the profit-maximizing level of output occurs at the point where
a. price equals average cost.
b. average cost equals average revenue.
c. total cost equals total revenue.
d. price equals marginal cost.
a. price equals average cost.
b. average cost equals average revenue.
c. total cost equals total revenue.
d. price equals marginal cost.
answer
d. price equals marginal cost.
question
For a competitive firm, the price at every level of output equals
a. marginal cost.
b. average profit.
c. marginal revenue.
d. average cost.
a. marginal cost.
b. average profit.
c. marginal revenue.
d. average cost.
answer
c. marginal revenue.
question
Which of the following is not true about the slope of the total revenue curve for a perfectly competitive firm?
a. It increases at a constant rate.
b. It is the marginal revenue.
c. It is constant.
d. It equals the price for a competitive firm.
a. It increases at a constant rate.
b. It is the marginal revenue.
c. It is constant.
d. It equals the price for a competitive firm.
answer
a. It increases at a constant rate.
question
Examine the graph below. This firm's profit-maximizing (or loss-minimizing) level of output is
a. a.
b. b.
c. c.
d. d.
a. a.
b. b.
c. c.
d. d.
answer
c. c.
question
A firm's profit-maximizing level of output is 40 units. If the firm's total cost of production at that output level is $3200, it can be generating a positive profit only if
a. the marginal cost of 41st unit is less than the marginal cost of the 40th unit.
b. its price equals marginal cost.
c. the marginal cost of the 40th unit is less than $80.
d. its price is greater than $80.
a. the marginal cost of 41st unit is less than the marginal cost of the 40th unit.
b. its price equals marginal cost.
c. the marginal cost of the 40th unit is less than $80.
d. its price is greater than $80.
answer
d. its price is greater than $80.
question
Examine the graph below. If this firm produces at its profit-maximizing level, total cost would be
a. $500.
b. $9.
c. $50.
d. $450.
a. $500.
b. $9.
c. $50.
d. $450.
answer
d. $450.
question
Examine graph below. If this firm produces at its profit-maximizing output, its total fixed cost would be
a. $150.
b. $300.
c. $450.
d. $500.
a. $150.
b. $300.
c. $450.
d. $500.
answer
a. $150.
question
Examine the graph below. This firm is making
a. zero profit.
b. an economic profit.
c. zero output.
d. an economic loss.
a. zero profit.
b. an economic profit.
c. zero output.
d. an economic loss.
answer
d. an economic loss.
question
Examine the graph below. If this firm produces at its profit-maximizing output, its profit is
a. −$30.
b. $30.
c. $60.
d. −$15.
a. −$30.
b. $30.
c. $60.
d. −$15.
answer
a. −$30.
question
Which of the following is not true about the short-run market supply curve?
a. It is upward sloping.
b. It is a smooth curve when there are only a few firms in the market.
c. It is the horizontal summation of the individual firms' short-run supply curves.
d. It describes the total output of all the firms in the market at each price level.
a. It is upward sloping.
b. It is a smooth curve when there are only a few firms in the market.
c. It is the horizontal summation of the individual firms' short-run supply curves.
d. It describes the total output of all the firms in the market at each price level.
answer
b. It is a smooth curve when there are only a few firms in the market.
question
Which of the following does not explain why an increase in market demand leads to a larger market output?
a. Some firms find that they can now cover their variable costs.
b. Firms are producing where price equals marginal cost.
c. Firms are hiring more productive workers.
d. Firms can now justify paying higher marginal costs.
a. Some firms find that they can now cover their variable costs.
b. Firms are producing where price equals marginal cost.
c. Firms are hiring more productive workers.
d. Firms can now justify paying higher marginal costs.
answer
c. Firms are hiring more productive workers.
question
Examine the graph below. If the market price changes from $20 to $15, this firm should
a. reduce output to 150 units.
b. reduce output to 140 units.
c. shut down.
d. reduce output to 120 units.
a. reduce output to 150 units.
b. reduce output to 140 units.
c. shut down.
d. reduce output to 120 units.
answer
b. reduce output to 140 units.
question
Examine the graph below. When the price rises from $20 to $25, this firm's long-run output level is
a. 120 units.
b. 90 units.
c. 80 units.
d. 110 units.
a. 120 units.
b. 90 units.
c. 80 units.
d. 110 units.
answer
d. 110 units.
question
Profit is defined as ________.
a. TC − TR
b. TC + TR
c.TRTC
d. TR − TC
a. TC − TR
b. TC + TR
c.TRTC
d. TR − TC
answer
d. TR − TC
question
In a competitive market,
a. the market price is set by a firm that has market power.
b. each competitive firm can set its own price.
c. the market price is set by the forces of supply and demand.
d. the market price is the sum of the individual firms' prices.
a. the market price is set by a firm that has market power.
b. each competitive firm can set its own price.
c. the market price is set by the forces of supply and demand.
d. the market price is the sum of the individual firms' prices.
answer
c. the market price is set by the forces of supply and demand.
question
Matt runs a business out of his apartment. He pays his temporary workers $1,000 and his suppliers $500, and he makes revenue of $2000. If his business folds, he can rent out the extra room for $500, the temporary workers can make the same wages elsewhere, and he can find a job paying $700. What is his economic profit?
a. -$200
b. -$700
c. $500
d. $0
a. -$200
b. -$700
c. $500
d. $0
answer
b. -$700
question
Any firm's profit is
a. the same as its total revenue.
b. the difference between total revenue and total cost.
c. product price multiplied by quantity sold.
d. determined by the price the firm sets for its product.
a. the same as its total revenue.
b. the difference between total revenue and total cost.
c. product price multiplied by quantity sold.
d. determined by the price the firm sets for its product.
answer
b. the difference between total revenue and total cost.
Profit is a firm's total revenue minus its total costs. Total revenue is product price multiplied by quantity sold. From this total, the firm deducts its production costs to find its profit.
Profit is a firm's total revenue minus its total costs. Total revenue is product price multiplied by quantity sold. From this total, the firm deducts its production costs to find its profit.
question
Accounting records almost always account for opportunity costs.
True
False
True
False
answer
False
Accounting ignores opportunity costs. Accounting keeps track of dollar expenditures and receipts and valuation of assets.
Accounting ignores opportunity costs. Accounting keeps track of dollar expenditures and receipts and valuation of assets.
question
A firm has fixed costs of $10,000. It operates at its profit-maximizing level of output, producing 1000 units at an AVC of $12 each. If the firm has a loss of $2000 in the short run, it should
a. shut down.
b. continue to operate at its current output level.
c. increase its output.
d. continue to operate, but at a lower level of output.
a. shut down.
b. continue to operate at its current output level.
c. increase its output.
d. continue to operate, but at a lower level of output.
answer
b. continue to operate at its current output level.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
