Question 1

Entry of new firms in an increasing-cost industry leads to an upward shift of the LRAC curve.

Accepted Answer

A) True 
 B)False

Question 2

Refer to Scenario 9.6 below to answer the question(s) that follow.
SCENARIO 9.6: Celeste borrowed $40,000 from her brother to open a car wash. She pays her brother a 5% yearly return on the money he lent her. Her other yearly fixed costs equal $18,000. Her variable costs equal $40,000. In her first year, Amy sold 40,000 car washes at a price of $2.50 per car wash.
-Refer to Scenario 9.6. Celeste's total fixed costs equal

Accepted Answer

A)  $2,000. 
B)  $18,000. 
C)  $20,000. 
D)  $22,000. 
A)  $2,000. 
B)  $18,000. 
C)  $20,000. 
D)  $22,000.

Question 3

Refer to the information provided in Figure 9.1 below to answer the question(s) that follow.   Figure 9.1
-Refer to Figure 9.1. If this farmer maximizes profits, his per-bushel profit will be

Accepted Answer

A)  $2. 
B)  $4. 
C)  $9. 
D)  $15. 
A)  $2. 
B)  $4. 
C)  $9. 
D)  $15.

Question 4

In the short run, firms suffering losses should always shut down.

Accepted Answer

A) True 
 B)False

Question 5

If ________, a firm would either operate or shut down in the short run and contract in the long run.

Accepted Answer

A)  TR > TC 
B)  TC > TR 
C)  AVC > ATC 
D)  AFC > AVC 
A)  TR > TC 
B)  TC > TR 
C)  AVC > ATC 
D)  AFC > AVC

Question 6

Refer to the data provided in Table 9.3 below to answer the following question(s).
Table 9.3
  
-Refer to Table 9.3. The shutdown point price for this firm is

Accepted Answer

A)  $0. 
B)  $20. 
C)  $30. 
D)  $56. 
A)  $0. 
B)  $20. 
C)  $30. 
D)  $56.

Question 7

The shape of a firm's ________ run average cost curve depends on how costs vary with ________.

Accepted Answer

A)  short; scale of operations 
B)  short; no fixed factor of production 
C)  long; scale of operations 
D)  long; a fixed factor of production 
A)  short; scale of operations 
B)  short; no fixed factor of production 
C)  long; scale of operations 
D)  long; a fixed factor of production

Question 8

An increase in a firm's scale of production leads to no change in average total cost as long as there are

Accepted Answer

A)  economies of scale. 
B)  diseconomies of scale. 
C)  negative returns to scale. 
D)  constant returns to scale. 
A)  economies of scale. 
B)  diseconomies of scale. 
C)  negative returns to scale. 
D)  constant returns to scale.

Question 9

If price is above average total cost at the output where marginal revenue equals marginal cost, a firm will earn positive economic profits.

Accepted Answer

A) True 
 B)False

Question 10

Refer to the data provided in Table 9.3 below to answer the following question(s).
Table 9.3
  
-Refer to Table 9.3. The lowest output this firm would produce before shutting down is ________ units.

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 11

When long-run average costs decrease as a result of industry growth, there are

Accepted Answer

A)  internal economies. 
B)  internal diseconomies. 
C)  external economies. 
D)  external diseconomies. 
A)  internal economies. 
B)  internal diseconomies. 
C)  external economies. 
D)  external diseconomies.

Question 12

Input prices rise as entry occurs in an constant-cost industry.

Accepted Answer

A) True 
 B)False

Question 13

The ________ part of a perfectly competitive firm's marginal cost curve that is equal to or above points on its average variable cost curve is the firm's short-run supply curve.

Accepted Answer

A)  declining 
B)  horizontal 
C)  rising 
D)  backward bending 
A)  declining 
B)  horizontal 
C)  rising 
D)  backward bending

Question 14

The Speedy Typesetting Company, a perfectly competitive firm, is currently producing where P = MC and is earning a normal profit. The yearly licensing fee that this firm must pay for the use of a statistical software program was just increased from $1,000 to $1,200. In the short run, this firm will most likely

Accepted Answer

A)  reduce the amount of output it produces because its cost curves have shifted up and to the left. 
B)  continue to produce the same amount of output because only its fixed costs have increased. 
C)  produce more units of output to increase revenue to cover the additional fixed costs. 
D)  shut down because it will no longer be earning a normal profit. 
A)  reduce the amount of output it produces because its cost curves have shifted up and to the left. 
B)  continue to produce the same amount of output because only its fixed costs have increased. 
C)  produce more units of output to increase revenue to cover the additional fixed costs. 
D)  shut down because it will no longer be earning a normal profit.

Question 15

Firms in perfectly competitive industries that are earning short-run profits will likely break even in the long run.

Accepted Answer

A) True 
 B)False

Question 16

Refer to the information provided in Figure 9.3 below to answer the question(s) that follow.   Figure 9.3
-Refer to Figure 9.3. This firm will earn a zero economic profit if price is

Accepted Answer

A)  $0. 
B)  $4. 
C)  $7. 
D)  $13. 
A)  $0. 
B)  $4. 
C)  $7. 
D)  $13.

Question 17

Firms that are "breaking even" are

Accepted Answer

A)  earning zero economic profits. 
B)  earning less than a normal rate of return. 
C)  shutting down in the short run. 
D)  All of the above are correct. 
A)  earning zero economic profits. 
B)  earning less than a normal rate of return. 
C)  shutting down in the short run. 
D)  All of the above are correct.

Question 18

A perfectly competitive firm's ________ point is the lowest point on its AVC curve.

Accepted Answer

A)  profit-maximizing 
B)  break-even 
C)  shut down 
D)  loss-maximizing 
A)  profit-maximizing 
B)  break-even 
C)  shut down 
D)  loss-maximizing

Question 19

Refer to the information provided in Figure 9.1 below to answer the question(s) that follow.   Figure 9.1
-Refer to Figure 9.1. If this farmer maximizes profits, his average variable cost will be

Accepted Answer

A)  $7. 
B)  $9. 
C)  $11. 
D)  $15. 
A)  $7. 
B)  $9. 
C)  $11. 
D)  $15.

Question 20

A firm will shut down in the short run if

Accepted Answer

A)  it is suffering a loss. 
B)  fixed costs exceed revenues. 
C)  variable costs exceed revenues. 
D)  total costs exceed revenues. 
A)  it is suffering a loss. 
B)  fixed costs exceed revenues. 
C)  variable costs exceed revenues. 
D)  total costs exceed revenues.

Exam 9: Long-Run Costs and Output Decisions

Entry of new firms in an increasing-cost industry leads to an upward shift of the LRAC curve.

Refer to the information provided in Figure 9.1 below to answer the question(s) that follow. Figure 9.1 -Refer to Figure 9.1. If this farmer maximizes profits, his per-bushel profit will be

In the short run, firms suffering losses should always shut down.

If ________, a firm would either operate or shut down in the short run and contract in the long run.

Refer to the data provided in Table 9.3 below to answer the following question(s). Table 9.3 -Refer to Table 9.3. The shutdown point price for this firm is

The shape of a firm's ________ run average cost curve depends on how costs vary with ________.

An increase in a firm's scale of production leads to no change in average total cost as long as there are

If price is above average total cost at the output where marginal revenue equals marginal cost, a firm will earn positive economic profits.

Refer to the data provided in Table 9.3 below to answer the following question(s). Table 9.3 -Refer to Table 9.3. The lowest output this firm would produce before shutting down is ________ units.

When long-run average costs decrease as a result of industry growth, there are

Input prices rise as entry occurs in an constant-cost industry.

The ________ part of a perfectly competitive firm's marginal cost curve that is equal to or above points on its average variable cost curve is the firm's short-run supply curve.

Firms in perfectly competitive industries that are earning short-run profits will likely break even in the long run.

Refer to the information provided in Figure 9.3 below to answer the question(s) that follow. Figure 9.3 -Refer to Figure 9.3. This firm will earn a zero economic profit if price is

Firms that are "breaking even" are

A perfectly competitive firm's ________ point is the lowest point on its AVC curve.

Refer to the information provided in Figure 9.1 below to answer the question(s) that follow. Figure 9.1 -Refer to Figure 9.1. If this farmer maximizes profits, his average variable cost will be

A firm will shut down in the short run if

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Input Demand: The Labor and Land Markets

Input Demand: The Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: The Economics of Taxation

Introduction to Macroeconomics

Measuring National Output and National Income

Unemployment, Inflation, and Long-Run Growth

Aggregate Expenditure and Equilibrium Output

The Government and Fiscal Policy

Money, the Federal Reserve, and the Interest Rate

The Determination of Aggregate Output, the Price Level, and the Interest Rate

Policy Effects and Cost Shocks in the Asad Model

The Labor Market in the Macroeconomy

Financial Crises, Stabilization, and Deficits

Household and Firm Behavior in the Macroeconomy: a Further Look

Long-Run Growth

Alternative Views in Macroeconomics

International Trade, Comparative Advantage, and Protectionism

Open-Economy Macroeconomics: the Balance of Payments and Exchange Rates

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

The shape of a firm's run average cost curve depends on how costs vary with .