Economics Exam 2

1.

1 point

Introduction of the Verson Stamping Machine helped firms in the automobile industry:

eliminate diminishing returns in production.

reach their minimum efficient scale at a lower level of production.

achieve greater economies of scale.

shift their AVC, ATC, and MC curves upward.

2.

1 point

The following table applies to a purely competitive industry composed of 100 identical firms.

Q Demanded--Price--Q Supplied
400K--5--800K
500K--4--700K
600K--3--600K
700K--2--500K
800K--1--400K

If each of the 100 firms in the industry is maximizing its profit, each must have a marginal cost of:

$3.

$5.

$4.

$2.

3.

1 point

An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of:

monopolistic competition.

pure competition.

pure monopoly.

oligopoly.

4.

1 point

The following is cost information for the Creamy Crisp Donut Company:
Entrepreneur's potential earnings as a salaried worker = $50,000
Annual lease on building = $22,000
Annual revenue from operations = $380,000
Payments to workers = $120,000
Utilities (electricity, water, disposal) costs = $8,000
Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000
Entrepreneur's forgone interest on personal funds used to finance the business = $6,000

Refer to the above data. Creamy Crisp's accounting profit is:

$380,000.

$150,000.

$294,000.

$230,000.

5.

1 point

Assume a firm closes down in the short run and produces no output. Under these conditions:

TVC is positive, but TFC and TC are zero.

TFC, TVC, and TC will all be positive.

TFC is positive, but TVC and TC are zero.

TFC and TC are positive, but TVC is zero.

6.

1 point

A perfectly elastic demand curve implies that the firm:

is selling a differentiated (heterogeneous) product.

must lower price to sell more output.

can sell as much output as it chooses at the existing price.

realizes an increase in total revenue which is less than product price when it sells an extra unit.

7.

1 point

For a purely competitive firm total revenue:

graphs as a straight upsloping line from the origin.

has all of these characteristics.

is price times quantity sold.

increases by a constant absolute amount as output expands.

8.

1 point

Economists would describe the U.S. automobile industry as:

monopolistically competitive.

a pure monopoly.

purely competitive.

an oligopoly.

9.

1 point

Use the following data to answer the question. The letters A, B, and C designate three successively larger plant sizes.

Output--ATC-A--ATC-B--ATC-C
10--$6--$13--$44
20--5--9--35
30--4--6--27
40--5--4--20
50--7--3--14
60--10--4--11
70--14--5--8
80--19--7--6
90--25--10--5--
100--32--16--7

In the long run the firm should use plant size "C" for:

40 to 70 units of output.

10 to 30 units of output.

all possible levels of output.

all units of output greater than 80.

10.

1 point

Price is constant or given to the individual firm selling in a purely competitive market because:

there are no good substitutes for its product.

of product differentiation reinforced by extensive advertising.

the firm's demand curve is downsloping.

each seller supplies a negligible fraction of total supply.

11.

1 point

A natural monopoly exists when:

short-run average total cost curves are tangent to long-run average total cost curves.

unit costs are minimized by having one firm produce an industry's entire output.

minimum efficient scale is attained at a small level of output.

several formerly competing producers merge to become the only firm in an industry.

12.

1 point

Answer the question on the basis of the following data confronting a firm:

Output--Marginal Revenue--Marginal Cost
0--X--X
1--16--10
2--16--9
3--16--13
4--16--17
5--16--21

This firm is selling its output in a(n):

monopolistic market.

monopolistically competitive market.

oligopolistic market.

purely competitive market.

13.

1 point

Other things equal, if the prices of a firm's variable inputs were to fall:

average variable cost would fall, but marginal cost would be unchanged.

one could not predict how unit costs of production would be affected.

marginal cost, average variable cost, and average total cost would all fall.

marginal cost, average variable cost, and average fixed cost would all fall.

14.

1 point

Assume a purely competitive firm is selling 200 units of output at $3 each. At this output its total fixed cost is $100 and its total variable cost is $350. This firm:

is making a profit, but not necessarily the maximum profit.

is maximizing its profit.

is incurring losses.

should shut down in the short run.

15.

1 point

Which of the following is not correct?

Where marginal product is greater than average product, average product is rising.

Where marginal product is zero, total product is at a maximum.

Where total product is at a maximum, average product is also at a maximum.

Marginal product becomes negative before average product becomes negative.

16.

1 point

Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10:

Output/ATC
1/40
2/27
3/29
4/31
5/38

The total cost of producing 4 units of output is:

$127.

$134.

$31.

$87.

17.

1 point

Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run?

Price times quantity produced must be equal to or greater than total variable cost for some level of output or the firm will close down in the short run.

Price may be equal to, greater than, or less than average total cost.

Price must be equal to or greater than minimum average variable cost for the firm to continue producing.

Price must be at least equal to average total cost.

18.

1 point

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes:

the law of diminishing returns.

X-inefficiency.

the law of diminishing marginal utility.

economies and diseconomies of scale.

19.

1 point

A purely competitive seller should produce (rather than shut down) in the short run:

if total revenue exceeds total cost or if total cost exceeds total revenue by some amount less than total fixed cost.

only if total revenue exceeds total cost.

only if total cost exceeds total revenue.

if total cost exceeds total revenue by some amount greater than total fixed cost.

20.

1 point

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:

may be either greater or less than $5.

will be less than $5.

will also be $5.

will be greater than $5.

21.

1 point

If marginal cost is:

rising, then average total cost must also be rising.

falling, then average total cost must also be falling.

rising, then average total cost could be either falling or rising.

falling, then average total cost could be either falling or rising.

22.

1 point

A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should:

produce because it will realize an economic profit.

shut down in the short run.

liquidate its assets and go out of business.

produce because the resulting loss is less than its TFC.

23.

1 point

The short-run supply curve for a purely competitive industry can be found by:

summing horizontally the segments of the MC curves lying above the AVC curve for all firms.

multiplying the AVC curve of the representative firm by the number of firms in the industry.

adding horizontally the AVC curves of all firms.

adding horizontally the immediate market period supply curves of each firm.

24.

1 point

If at the MC = MR output, AVC exceeds price:

The firm should expand its plant.

New firms will enter this industry.

Some firms should shut down in the short run.

The firm should produce the MC = MR output and realize an economic profit.

25.

1 point

Which of the following best expresses the law of diminishing returns?

Population growth automatically adjusts to that level at which the average product per worker will be at a maximum.

As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra output will decline.

Because large-scale production allows the realization of economies of scale, the real costs of production vary directly with the level of output.

Proportionate increases in the inputs of all resources will result in a less-than-proportionate increase in total output.

26.

1 point

Use the following data to answer the question:

Inputs of Labor/Total Product
0/0
1/8
2/18
3/25
4/30
5/33
6/34
7/32

Marginal product becomes negative with the hiring of the __________ unit of labor.

third

sixth

seventh

fourth

27.

1 point

To economists, the main difference between the short run and the long run is that:

the law of diminishing returns applies in the long run, but not in the short run.

in the short run all resources are fixed, while in the long run all resources are variable

fixed costs are more important to decision making in the long run than they are in the short run.

in the long run all resources are variable, while in the short run at least one resource is fixed.

28.

1 point

Answer the question on the basis of the following cost data for a purely competitive seller:

Total Output--Total Fixed Cost--Total Variable Cost--Total Cost
0--50--0--50
1--50--70--120
2--50--120--170
3--50--150--200
4--50--220--270
5--50--300-350
6--50--390--440

At 5 units of output average fixed cost, average variable cost, and average total cost are:

$10, $60, and $70 respectively.

$50, $40, and $90 respectively.

$5, $25, and $30 respectively.

$10, $70, and $80 respectively.

29.

1 point

Economies of scale are indicated by:

the difference between total revenue and total cost.

the rising segment of the average variable cost curve.

a rising marginal cost curve.

the declining segment of the long-run average total cost curve.

30.

1 point

Which of the following is most likely to be a fixed cost?

shipping charges

expenditures for raw materials

wages for unskilled labor

property insurance premiums

31.

1 point

TFC = Total Fixed Cost
MC = Marginal Cost
TVC = Total Variable Cost
Q = Quantity of Output
P = Product Price

Marginal Cost is:

Change in TVC/Q

Change in TVC/Change in Q

Change in TFC/Change in Q

P-Q/Change in Q

32.

1 point

If a purely competitive firm is producing at some level less than the profit-maximizing output, then:

price is necessarily greater than average total cost.

price exceeds marginal revenue.

marginal revenue exceeds marginal cost.

fixed costs are large relative to variable costs.

33.

1 point

Diseconomies of scale arise primarily because:

beyond some point marginal product declines as additional units of a variable resource (labor) are added to a fixed resource (capital).

firms must be large both absolutely and relative to the market to employ the most efficient productive techniques available.

the short-run average total cost curve rises when marginal product is increasing.

of the difficulties involved in managing and coordinating a large business enterprise.

34.

1 point

If you owned a small farm, which of the following would most likely be a fixed cost?

fertilizer

harvest labor

seed

hail insurance

35.

1 point

Suppose that at 500 units of output marginal revenue is equal to marginal cost. The firm is selling its output at $5 per unit and average total cost at 500 units of output is $6. On the basis of this information we:

can say that the firm should close down in the short run.

cannot determine whether the firm should produce or shut down in the short run.

can say that the firm can produce and realize an economic profit in the short run.

can assume the firm is not using the most efficient technology.

36.

1 point

Answer the question on the basis of the following output data for a firm.

Number of Workers/Units of Output
0/0
1/40
2/90
3/126
4/150
5/165
6/180

Assume that the amounts of all non-labor resources are fixed.Average product is at a maximum when:

three workers are hired.

four workers are hired.

five workers are hired.

two workers are hired.

37.

1 point

An unprofitable motel will stay open in the short-run if:

price (average nightly room rate) exceeds average variable cost.

price (average nightly room rate) exceeds average fixed cost.

marginal revenue exceeds marginal cost.

marginal revenue exceeds price.

38.

1 point

Use the following data to answer the question. The letters A, B, and C designate three successively larger plant sizes.

Output--ATC-A--ATC-B--ATC-C
10--$6--$13--$44
20--5--9--35
30--4--6--27
40--5--4--20
50--7--3--14
60--10--4--11
70--14--5--8
80--19--7--6
90--25--10--5--
100--32--16--7

At what level of output is minimum efficient scale realized?

30

50

60

40

39.

1 point

In the short run a purely competitive firm that seeks to maximize profit will produce:

at any point where the total revenue and total cost curves intersect.

where the demand and the ATC curves intersect.

where total revenue exceeds total cost by the maximum amount.

that output where economic profits are zero.

40.

1 point

Firms seek to maximize:

total profit.

market share.

total revenue.

per unit profit.

41.

1 point

Which of the following is correct?

When marginal product is falling, total product must be falling.

When marginal product is falling, average product must also be falling.

When total product is rising, both average product and marginal product must also be rising.

Marginal product rises faster than average product and also falls faster than average product.

42.

1 point

In the short run, a purely competitive firm will earn a normal profit when:

P = AVC.

that firm's MR = market equilibrium price.

P = ATC.

P > MC.

43.

1 point

A purely competitive seller is:

neither a "price maker" nor a "price taker."

. a "price maker."

a "price taker."

both a "price maker" and a "price taker."

44.

1 point

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

None are either implicit or explicit costs.

All are implicit costs.

All are opportunity costs.

All are explicit costs.

45.

1 point

For most producing firms:

total costs rise as output is carried to a certain level, and then begin to decline.

marginal cost rises as output is carried to a certain level, and then begins to decline.

average total costs rise as output is carried to a certain level, and then begin to decline.

average total costs decline as output is carried to a certain level, and then begin to rise.

46.

1 point

If a purely competitive firm shuts down in the short run:

it will realize a loss equal to its explicit costs.

it will realize a loss equal to its total fixed costs.

it will realize a loss equal to its total variable costs.

its loss will be zero.

47.

1 point

TFC = Total Fixed Cost
MC = Marginal Cost
TVC = Total Variable Cost
Q = Quantity of Output
P = Product Price

Average fixed cost is:

TVC/Q

TFC/Q

TVC = MC

MC/Q

48.

1 point

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. For a purely competitive firm, marginal revenue graphs as a:

straight line, parallel to the vertical axis.

straight line, parallel to the horizontal axis.

straight, upsloping line.

straight, downsloping line.

49.

1 point

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:

zero and its economic loss was $200,000.

$100,000 and its economic profits were $100,000.

$100,000 and its economic profits were zero.

$200,000 and its economic profits were zero.

50.

1 point

Answer the question on the basis of the following cost data for a purely competitive seller:

Output--Total Cost
0--50
1--90
2--120
3--140
4--170
5--210
6--260
7--330

If product price is $45, the firm will:

produce 5 units and realize a $15 economic profit.

produce 6 units and realize a $100 economic profit.

shut down.

produce 4 units and realize a $120 economic profit.