Micro Quiz 5 and 6

1.

1 point

A perfectly competitive firms average fixed cost function is AFC = 30/Q, its average variable cost function is AVC = 6 + 0.1Q, and it marginal cost function is MC = 6 + 0.2Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the market price of the good is P = $12, then the firm will:

produce 60 units of output and suffer a total loss of $720

produce 60 units of output and suffer a total loss of $360

produce 30 units of output and earn a total profit of $60

produce 30 units of output and earn a total profit of $360

produce 0 units of output (shut down) and suffer a total loss of $30

2.

1 point

The total variable cost incurred by a firm will depend upon:

the prices of its variable inputs (e.g., the hourly wage rate that workers are paid)

the production techniques that are used (i.e., its short run production function)

the amount of output produced

all of the above

3.

1 point

What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?

they all help explain why a firms short run average total cost curve is U-shaped

they all help explain why a monopolists demand and marginal revenue curves are identical

they must all be present before a monopolist may practice price discrimination

they are all barriers to entry

4.

1 point

If the total variable cost incurred by producing 9 units of output is $90 and the total variable cost incurred by producing 10 units of output is $120, then:

the marginal cost of the ninth unit is $30

the marginal cost of the tenth unit is $120

the average variable cost of 9 units is $10

the average variable cost of 10 units is $10

5.

1 point

Consider a small farm that uses machinery and laborers to grow and harvest fruits or vegetables. Which of the following best describes one of its fixed costs?

the plot of land where the fruits and vegetables are grown

the seeds or seedlings to be planted

insurance or loan payments on machinery

total per-period (e.g., weekly) payments made to laborers

the hourly wage rate paid to laborers

6.

1 point

The law of diminishing marginal product (or returns) describes the relationship between inputs and outputs in the short run. The shapes of which cost curves can be attributed to the law of diminishing marginal product (or returns)?

total fixed cost, total variable cost, average variable cost, marginal cost, and average total cost

total variable cost, total cost, average variable cost, average total cost, and marginal cost

total cost, average variable cost, average fixed cost, average total cost, and marginal cost

total variable cost, total cost, average fixed cost, marginal cost, and average variable cost

7.

1 point

Consider a good that is produced and traded in a perfectly competitive market. The market demand curve for the good is ______, while the demand curve for a single competitive firms good ______.

downward sloping, perfectly elastic

perfectly elastic, downward sloping

perfectly inelastic, downward sloping

downward sloping, perfectly inelastic

8.

1 point

Recall the economic distinction between the short run and the long run. If a competitive firm or a monopoly is operating in the short run then:

it will not be able to change the level of any of the inputs used in the production process

it will not be able to change the level of all of the inputs used in the production process

it will not be able to cut its rate of output to zero

barriers to entry exist that prevent new firms from entering the industry

9.

1 point

Consider a monopoly whose total cost function is TC = 20 + 10Q + 0.3Q2 and whose marginal cost function is MC = 10 + 0.6Q. The demand function for the firms good is P = 120 - 0.2Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the firm uses a uniform pricing strategy, then the firm will:

produce 90 units of output, charge a price of $102, and earn a profit of $7460

produce 110 units of output, charge a price of $98, and earn a profit of $10780

produce 90 units of output, charge a price of $102, and earn a profit of $9180

produce 110 units of output, charge a price of $98, and earn a profit of $6030

10.

1 point

A fixed cost is:

average total cost (or cost per unit) multiplied by the number of units produced

the cost of producing each additional unit of output

usually zero in the short run

any cost which does not change when the firm changes the amount of output it produces

11.

1 point

If a producer wants to determine how much would be saved by reducing its per-period output by one unit, it will evaluate its:

marginal cost function

average total cost function

marginal product function

average product function

average variable cost function

12.

1 point

Assume that in the short run a firm which is producing 100 units of output (Q) per-period has average total costs (ATC) of $5 and average fixed costs (AFC) of $2. Given this information it may be concluded that:

TFC = $200; TVC = $300; TC = $500; MC = $2

TFC = $200; TVC = $500; TC = $700; MC = $3

TFC = $200; TVC = $300; TC = $500

TFC = $200; TVC = $500; TC = $700

13.

1 point

Suppose a firms production function is Q = 2K^0.5L^0.5. Its level of capital is fixed at 4 units, the price of labor is PL = $8 per unit, and the price of capital is PK = $10 per unit. Given this information, the firms total cost (TC = TFC + TVC) function is:

TC = 10 + Q^2/4

TC = 40 + Q^2/2

TC = 10 + L^2/2

TC = 40 + L^2/2

TC = 40 + L^2/4

TC = 40 + Q^2/4

TC = 10 + L^2/4

TC = 10 + Q^2/2

14.

1 point

Compared to a monopoly, the demand curve faced by a perfectly competitive firm is:

are perfectly inelastic

more elastic at all prices

perfectly elastic

less elastic at all prices

also the monopolists marginal revenue curves under uniform pricing

15.

1 point

The average product of labor (APL) is:

the change in total output attributed to producing an extra unit of a good

the change in total revenue attributed to the increased output from employing an additional worker

the change in total output attributed to employing an additional worker

total output divided by the quantity of units produced

total output divided by the number of workers employed

the change in total cost attributed to the increased output from employing an additional worker

16.

1 point

The principle of producing output to the point where MR = MC in order to maximize total profit or minimize total operating losses applies:

only to monopolies

to both perfectly competitive firms and monopolies

only to perfectly competitive firms

only to firms that are able to price discriminate

17.

1 point

The law of diminishing marginal product (or returns) states that:

none of the above

as more and more of a variable input, such as labor, is employed to a short-run production process, beyond a point output will decrease at an increasing rate

as more and more of a variable input, such as labor, is employed to a short-run production process, beyond a point output will decrease at a decreasing rate

as more and more of a variable input, such as labor, is employed to a short-run production process, beyond a point output will increase at an increasing rate

as more and more of a variable input, such as labor, is employed to a short-run production process, beyond a point output will increase at a decreasing rate

18.

1 point

When a firm is maximizing total profit it will necessarily be:
i. maximizing the difference between average revenue and average total cost
ii. maximizing the difference between total revenue and total cost
iii. minimizing total cost
iv. maximizing total revenue

i

ii

iii and iv

iii

i and ii

19.

1 point

If a firm is producing a level of output such that ATC < P, it may be concluded that:

it will incur a loss

it will incur a profit

its profits will be zero

it should shut down and only pay its fixed costs

20.

1 point

Suppose a firm is producing at a break-even point. It follows that:
i. total variable cost is equal to total revenue
ii. total cost is equal to total revenue
iii. average variable cost is equal to average revenue
iv. average total cost is equal to average revenue

ii and iv

iii

i and iii

i

ii

21.

1 point

Firms confront a variety of costs in producing units of output to sell in the marketplace. Marginal cost (MC) references the:

change in total cost that results from producing each additional unit of output

change in average variable cost that results from producing each additional unit of output

change in average total cost that results from hiring an additional worker

change in total cost that results from hiring an additional worker

change in total fixed cost that results from producing each additional unit of output

22.

1 point

Suppose a firm is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $7 per unit and is incurring average variable costs of $6 per unit and average total costs of $8 per unit. Given this information, it may be concluded that the firm:

is operating at a loss that could be reduced by shutting down

is operating at a loss that is less than the loss incurred by shutting down

is operating at a profit that could be increased by producing more output

is operating at maximum total profit

23.

1 point

In which of the following would a monopoly increase its per-period total profits by increasing output:

if it were producing a level of output such that MC = MR

if it were producing a level of output such that MC > MR

none of the above

if it were producing a level of output such that MC < MR

24.

1 point

If a production process undergoes a technological improvement then:

a given amount of inputs will yield more output

a given amount of output may be produced with fewer inputs

total variable cost and average variable cost will be reduced at all positive levels of output

the short run production function (or total product curve) will rotate upward

all of the above

25.

1 point

The distinction between the short run and the long run for a firm is that:

in the short run at least one input is fixed whereas in the long run all inputs are fixed

in the short run at least one input is fixed whereas in the long run no inputs are fixed

in the short run all inputs are variable whereas in the long run all inputs are fixed

in the short run all inputs are fixed whereas in the long run no inputs are fixed

26.

1 point

Which of the following is correct regarding the relationship between the marginal product of labor and the average product of labor?
i. if marginal product is greater than average product, then average product will be increasing
ii. if marginal product is less than average product, then average product will be decreasing
iii. if average product is less than marginal product, then marginal product will be decreasing
iv. if average product is greater than marginal product, then marginal product will be increasing

ii

iii and iv

i

iii

i and ii

iv

27.

1 point

For a uniform-price monopolist _______________; and for a perfectly competitive firm _______________ :

P = AR < MR; P = MR = AR

P = AR > MR; P = MR = AR

P = AR > MR; P > MR = AR

P = MR = AR; P = AR > MR

P = MR < AR; P = MR = AR

28.

1 point

The total revenue function for a perfectly competitive firm:
i. increases initially, reaches a maximum, and then decreases as the quantity of output that it sells increases
ii. increases by a constant amount as the quantity of output that it sells increases
iii. appears graphically as an upward sloping straight line from the origin with a slope that is equal to the market price of the good

iii

i and iii

i

ii and iii

ii

29.

1 point

If the price of one of the firm's variable inputs increases, such as the hourly wage rate, then:

average variable cost would increase, but marginal cost would be unchanged

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

marginal cost would increase, but average variable cost would be unchanged

marginal cost, average variable cost, and average fixed cost would increase at all levels of output

marginal cost, average variable cost, and average total cost would increase at all levels of output

30.

1 point

Consider a firms per-period (e.g., hourly) production process. If it employs 1 unit of labor, then 4 units of output will be produced; if it employs 2 units of labor, then 10 units of output will be produced; and if it employs 3 units of labor, then 18 units of output will be produced. It follows that:

total output is increasing at an increasing rate and the marginal product of labor is decreasing

total output is increasing at a decreasing rate and the marginal product of labor is constant

total output is increasing at an increasing rate and the marginal product of labor is increasing

total output is increasing at an increasing rate and the marginal product of labor is constant

total output is increasing at a decreasing rate and the marginal product of labor is increasing

total output is increasing at a decreasing rate and the marginal product of labor is decreasing