Question 1

Higher input prices result in

Accepted Answer

A)  upward shifts of MC and reductions in output. 
B)  upward shifts of MC and increases in output. 
C)  downward shifts of MC and reductions in output. 
D)  downward shifts of MC and increases in output. 
E)  increased demand for the good the input is used for. 
A)  upward shifts of MC and reductions in output. 
B)  upward shifts of MC and increases in output. 
C)  downward shifts of MC and reductions in output. 
D)  downward shifts of MC and increases in output. 
E)  increased demand for the good the input is used for.

Question 2

A firm maximizes profit by operating at the level of output where

Accepted Answer

A)  average revenue equals average cost. 
B)  average revenue equals average variable cost. 
C)  total costs are minimized. 
D)  marginal revenue equals marginal cost. 
E)  marginal revenue exceeds marginal cost by the greatest amount. 
A)  average revenue equals average cost. 
B)  average revenue equals average variable cost. 
C)  total costs are minimized. 
D)  marginal revenue equals marginal cost. 
E)  marginal revenue exceeds marginal cost by the greatest amount.

Question 3

The authors note that the goal of maximizing the market value of the firm may be more appropriate than maximizing short-run profits because:

Accepted Answer

A)  the market value of the firm is based on long-run profits. 
B)  managers will not focus on increasing short-run profits at the expense of long-run profits. 
C)  this would more closely align the interests of owners and managers. 
D)  all of the above 
A)  the market value of the firm is based on long-run profits. 
B)  managers will not focus on increasing short-run profits at the expense of long-run profits. 
C)  this would more closely align the interests of owners and managers. 
D)  all of the above

Question 4

If a graph of a perfectly competitive firm shows that the MR = MC point occurs where MR is above AVC but below ATC,

Accepted Answer

A)  the firm is earning negative profit, and will shut down rather than produce that level of output. 
B)  the firm is earning negative profit, but will continue to produce where MR = MC in the short run. 
C)  the firm is still earning positive profit, as long as variable costs are covered. 
D)  the firm is covering explicit, but not implicit, costs. 
E)  the firm can cover all of fixed costs but only a portion of variable costs. 
A)  the firm is earning negative profit, and will shut down rather than produce that level of output. 
B)  the firm is earning negative profit, but will continue to produce where MR = MC in the short run. 
C)  the firm is still earning positive profit, as long as variable costs are covered. 
D)  the firm is covering explicit, but not implicit, costs. 
E)  the firm can cover all of fixed costs but only a portion of variable costs.

Question 5

The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because

Accepted Answer

A)  the market price is determined (through regulation) by the government 
B)  the firm supplies a different good than its rivals 
C)  the firm's output is a small fraction of the entire industry's output 
D)  the short run market price is determined solely by the firm's technology 
E)  the demand curve for the industry's output is downward sloping 
A)  the market price is determined (through regulation) by the government 
B)  the firm supplies a different good than its rivals 
C)  the firm's output is a small fraction of the entire industry's output 
D)  the short run market price is determined solely by the firm's technology 
E)  the demand curve for the industry's output is downward sloping

Question 6

The long-run supply curve in a constant-cost industry is linear and

Accepted Answer

A)  upward-sloping. 
B)  downward-sloping. 
C)  horizontal. 
D)  vertical. 
E)  could have any constant slope. 
A)  upward-sloping. 
B)  downward-sloping. 
C)  horizontal. 
D)  vertical. 
E)  could have any constant slope.

Question 7

Economic rents are typically counted as:

Accepted Answer

A)  accounting costs but not economic costs. 
B)  accounting and economic costs. 
C)  economic costs but not accounting costs. 
D)  none of the above 
A)  accounting costs but not economic costs. 
B)  accounting and economic costs. 
C)  economic costs but not accounting costs. 
D)  none of the above

Question 8

Homer's Boat Manufacturing cost function is: C(q) =   
q4 + 10,240. The marginal cost function is: MC(q) =   
q3. If Homer can sell all the boats he produces for $1,200, what is his optimal output? Calculate Homer's profit or loss.

Accepted Answer

The profit maximizing output level is wh

Question 9

Assume the market for tortillas is perfectly competitive. The market supply and demand curves for tortillas are given as follows:
supply curve:
P = .000002Q demand curve: P = 11 - .00002Q
The short run marginal cost curve for a typical tortilla factory is:
MC = .1 + .0009Q
a. Determine the equilibrium price for tortillas.
b. Determine the profit maximizing short run equilibrium level of output for a tortilla factory.
c. At the level of output determined above, is the factory making a profit, breaking-even, or making a loss? Explain your answer.
d. Assuming that all of the tortilla factories are identical, how many tortilla factories are producing tortillas?

Accepted Answer

a.
The equilibrium price is the price at

Question 10

In a constant-cost industry, an increase in demand will be followed by

Accepted Answer

A)  no increase in supply. 
B)  an increase in supply that will not change price from the higher level that occurs after the demand shift. 
C)  an increase in supply that will bring price down to the level it was before the demand shift. 
D)  an increase in supply that will bring price down below the level it was before the demand shift. 
E)  a decrease in demand to keep price constant. 
A)  no increase in supply. 
B)  an increase in supply that will not change price from the higher level that occurs after the demand shift. 
C)  an increase in supply that will bring price down to the level it was before the demand shift. 
D)  an increase in supply that will bring price down below the level it was before the demand shift. 
E)  a decrease in demand to keep price constant.

Question 11

That Table 8.1 shows a short-run situation is evident from

Accepted Answer

A)  the linear marginal revenue function. 
B)  the constant price. 
C)  the increasing marginal cost. 
D)  the presence of positive costs at Q = 0. 
E)  the absence of marginal values at Q = 0. 
A)  the linear marginal revenue function. 
B)  the constant price. 
C)  the increasing marginal cost. 
D)  the presence of positive costs at Q = 0. 
E)  the absence of marginal values at Q = 0.

Question 12

Which of the following events does NOT occur when market demand shifts leftward in an increasing-cost industry?

Accepted Answer

A)  Initially, the output produced by existing firms declines along the short-run market supply curve. 
B)  The market price declines below the minimum LAC due to the short-run supply response. 
C)  The market supply curve shifts leftward as some firms exit the market when the market price is below the minimum LAC. 
D)  As firms exit, the market price rises and attracts other firms to enter the market. 
E)  The LAC curve shifts downward as output falls. 
A)  Initially, the output produced by existing firms declines along the short-run market supply curve. 
B)  The market price declines below the minimum LAC due to the short-run supply response. 
C)  The market supply curve shifts leftward as some firms exit the market when the market price is below the minimum LAC. 
D)  As firms exit, the market price rises and attracts other firms to enter the market. 
E)  The LAC curve shifts downward as output falls.

Question 13

The market for wheat consists of 500 identical firms, each with the total and marginal cost functions shown:
TC = 90,000 + 0.00001Q2 
MC = 0.00002Q,
where Q is measured in bushels per year. The market demand curve for wheat is Q = 90,000,000 20,000,000P, where Q is again measured in bushels and P is the price per bushel.
a. Determine the short-run equilibrium price and quantity that would exist in the market.
b. Calculate the profit maximizing quantity for the individual firm. Calculate the firm's short-run profit (loss) at that quantity.
c. Assume that the short-run profit or loss is representative of the current long-run prospects in this market. You may further assume that there are no barriers to entry or exit in the market. Describe the expected long-run response to the conditions described in part b. (The TC function for the firm may be regarded as an economic cost function that captures all implicit and explicit costs.)

Accepted Answer

a.
Market supply is horizontal sum of in

Question 14

In the local cotton market, there are 1,000 producers that have identical short-run cost functions. They are: C(q) = 0.025q2 + 200, where q is the number of bales produced each period. The short-run marginal cost function for each producer is: MC(q) = 0.05q. If the local cotton market is perfectly competitive, what is each cotton producer's short-run supply curve? Derive the local market supply curve of cotton.

Accepted Answer

Given the cotton market is competitive,

Question 15

Figure 8.2
-Refer to Figure 8.2. If the firm expects $80 to be the long-run price, how many units of output will it plan to produce in the long run?

Accepted Answer

A)  22 
B)  34 
C)  38 
D)  50 
E)  64 
A)  22 
B)  34 
C)  38 
D)  50 
E)  64

Question 16

Spacely Sprockets' short-run cost curve is: C(q, K) =   
+ 15K, where q is the number of Sprockets produced and K is the number of robot hours Spacely hires. Currently, Spacely hires 10 robot hours per period. The short-run marginal cost curve is: MC(q, K) = 50   
. If Spacely receives $250 for every sprocket he produces, what is his profit maximizing output level? Calculate Spacely's profits.

Accepted Answer

The profit maximizing output level is wh

Question 17

Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm's marginal profit?

Accepted Answer

A)  Marginal revenue and marginal cost increase 
B)  Marginal revenue increases but marginal cost remains the same 
C)  Marginal cost may change but marginal revenue remains the same 
D)  Marginal revenue and marginal cost decrease 
A)  Marginal revenue and marginal cost increase 
B)  Marginal revenue increases but marginal cost remains the same 
C)  Marginal cost may change but marginal revenue remains the same 
D)  Marginal revenue and marginal cost decrease

Question 18

Bud Owen operates Bud's Package Store in a small college town. Bud sells six packs of beer for off-premises consumption. Bud has very limited store space and has decided to limit his product line to one brand of beer, choosing to forego the snack food lines that normally accompany his business. Bud's is the only beer retailer physically located within the town limits. He faces considerable competition, however, from sellers located outside of town. Bud regards the market as highly competitive and considers the current $2.50 per six pack selling price to be beyond his control. Bud's total and marginal cost functions are:
TC = 2000 + 0.0005Q2 
 MC = 0.001Q,
where Q refers to six packs per week. Included in the fixed cost figure is a $750 per week salary for Bud, which he considers to be his opportunity cost.
a. Calculate the profit maximizing output for Bud. What is his profit? Is this an economic profit or an accounting profit?
b. The town council has voted to impose a tax of $.50 per six pack sold in the town, hoping to discourage beer consumption. What impact will the tax have on Bud? Should Bud continue to operate? What impact will the tax have on Bud's out-of-town competitors?

Accepted Answer

a.
Given the competitive nature of the m

Question 19

A few sellers may behave as if they operate in a perfectly competitive market if the market demand is:

Accepted Answer

A)  highly inelastic. 
B)  very elastic. 
C)  unitary elastic. 
D)  composed of many small buyers. 
A)  highly inelastic. 
B)  very elastic. 
C)  unitary elastic. 
D)  composed of many small buyers.

Question 20

Which of following is an example of a homogeneous product?

Accepted Answer

A)  Gasoline 
B)  Copper 
C)  Personal computers 
D)  Winter parkas 
E)  both A and B 
A)  Gasoline 
B)  Copper 
C)  Personal computers 
D)  Winter parkas 
E)  both A and B

Higher input prices result in

A firm maximizes profit by operating at the level of output where

The authors note that the goal of maximizing the market value of the firm may be more appropriate than maximizing short-run profits because:

If a graph of a perfectly competitive firm shows that the MR = MC point occurs where MR is above AVC but below ATC,

The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because

The long-run supply curve in a constant-cost industry is linear and

Economic rents are typically counted as:

Homer's Boat Manufacturing cost function is: C(q) = q⁴ + 10,240. The marginal cost function is: MC(q) = q³. If Homer can sell all the boats he produces for $1,200, what is his optimal output? Calculate Homer's profit or loss.

In a constant-cost industry, an increase in demand will be followed by

That Table 8.1 shows a short-run situation is evident from

Which of the following events does NOT occur when market demand shifts leftward in an increasing-cost industry?

Figure 8.2 -Refer to Figure 8.2. If the firm expects $80 to be the long-run price, how many units of output will it plan to produce in the long run?

Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm's marginal profit?

A few sellers may behave as if they operate in a perfectly competitive market if the market demand is:

Which of following is an example of a homogeneous product?

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters

Exam 8: Profit Maximization and Competitive Supply

Higher input prices result in

A firm maximizes profit by operating at the level of output where

The authors note that the goal of maximizing the market value of the firm may be more appropriate than maximizing short-run profits because:

If a graph of a perfectly competitive firm shows that the MR = MC point occurs where MR is above AVC but below ATC,

The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because

The long-run supply curve in a constant-cost industry is linear and

Economic rents are typically counted as:

Homer's Boat Manufacturing cost function is: C(q) = q4 + 10,240. The marginal cost function is: MC(q) = q3. If Homer can sell all the boats he produces for $1,200, what is his optimal output? Calculate Homer's profit or loss.

In a constant-cost industry, an increase in demand will be followed by

That Table 8.1 shows a short-run situation is evident from

Which of the following events does NOT occur when market demand shifts leftward in an increasing-cost industry?

Figure 8.2 -Refer to Figure 8.2. If the firm expects $80 to be the long-run price, how many units of output will it plan to produce in the long run?

Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm's marginal profit?

A few sellers may behave as if they operate in a perfectly competitive market if the market demand is:

Which of following is an example of a homogeneous product?

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters

Homer's Boat Manufacturing cost function is: C(q) = q⁴ + 10,240. The marginal cost function is: MC(q) = q³. If Homer can sell all the boats he produces for $1,200, what is his optimal output? Calculate Homer's profit or loss.