Question 1

The horizontal sum of marginal cost curves (above AVC) of all the firms in an industry is the short-run industry supply curve.

Accepted Answer

A) True 
 B)False

Question 2

The shutdown point for a perfectly competitive firm is the

Accepted Answer

A)  lowest point on the ATC curve. 
B)  point at which a firm's long-run supply curve ends. 
C)  lowest point on the AVC curve. 
D)  lowest point on the marginal cost curve. 
A)  lowest point on the ATC curve. 
B)  point at which a firm's long-run supply curve ends. 
C)  lowest point on the AVC curve. 
D)  lowest point on the marginal cost curve.

Question 3

Refer to Scenario 9.1 below to answer the  Scenario 9.1 question(s) that follow.
 9.1: Amy borrowed $20,000 from her parents to open a bagel shop. She pays her parents a 5% yearly return on the money they lent her. Her other yearly fixed costs equal $9,000. Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of $1.50 per dozen.
-Refer to Scenario 9.1. Amy's total costs equal

Accepted Answer

A)  $39,000. 
B)  $40,000. 
C)  $50,000. 
D)  $59,000. 
A)  $39,000. 
B)  $40,000. 
C)  $50,000. 
D)  $59,000.

Question 4

Engineers for The Giffen Record Company have determined that a 35% increase in all compact disc inputs will cause a 45% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause ________ as output increases.

Accepted Answer

A)  average costs to increase 
B)  average costs to decrease 
C)  average costs to remain constant 
D)  marginal costs to increase 
A)  average costs to increase 
B)  average costs to decrease 
C)  average costs to remain constant 
D)  marginal costs to increase

Question 5

Which of the following is an example of economies of scale?

Accepted Answer

A)  As the computer industry has expanded, the number of professionally trained computer programmers has also increased, which has caused the salaries of computer programmers to increase. 
B)  To attract firms to locate in its state, the state government reduced the tax rate that businesses must pay on its profits, thus lowering the costs to firms who locate in the state. 
C)  A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases, the premium per person decreases substantially. 
D)  As the demand for calculators increased, the price of calculators actually fell. 
A)  As the computer industry has expanded, the number of professionally trained computer programmers has also increased, which has caused the salaries of computer programmers to increase. 
B)  To attract firms to locate in its state, the state government reduced the tax rate that businesses must pay on its profits, thus lowering the costs to firms who locate in the state. 
C)  A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases, the premium per person decreases substantially. 
D)  As the demand for calculators increased, the price of calculators actually fell.

Question 6

Refer to the information provided in Figure 9.2 below to answer the question(s) that follow.   Figure 9.2
-Refer to Figure 9.2. If demand for wheat is D3, then in the long run

Accepted Answer

A)  the firm will shut down. 
B)  the firm will exit the industry. 
C)  new firms will enter the industry, and the current firms will expand production. 
D)  None of the above is correct. 
A)  the firm will shut down. 
B)  the firm will exit the industry. 
C)  new firms will enter the industry, and the current firms will expand production. 
D)  None of the above is correct.

Question 7

Economic profit is

Accepted Answer

A)  (P‐AT
C) q. 
B)  (P+AT
C) q. 
C)  P(q-AT
C) . 
D)  Pq/ATC. 
A)  (P‐AT
C) q. 
B)  (P+AT
C) q. 
C)  P(q-AT
C) . 
D)  Pq/ATC.

Question 8

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 is maximizing profits, his profit will be

Accepted Answer

A)  -$24. 
B)  $45. 
C)  $48. 
D)  $72. 
A)  -$24. 
B)  $45. 
C)  $48. 
D)  $72.

Question 9

Marginal revenue equals marginal cost at an output of 15 units. At this output, marginal revenue equals $30, average variable cost equals $20, and average total cost equals $25. In the short run, a profit-maximizing firm will earn a profit of

Accepted Answer

A)  -$75. 
B)  $0. 
C)  $75. 
D)  $150. 
A)  -$75. 
B)  $0. 
C)  $75. 
D)  $150.

Question 10

Refer to the data provided in Table 9.4 below to answer the question(s) that follow.
Table 9.4
  
-Refer to Table 9.4. The market price is $84 and this firm is producing four units of output. Which of the following would you recommend to this firm?

Accepted Answer

A)  Continue producing four units of output, because the firm is able to make an economic profit. 
B)  Increase output to six units, so that marginal cost equals marginal revenue. 
C)  Reduce price to $34, so that marginal cost will equal marginal revenue at 4 units of output. 
D)  Increase output to seven units so that price is less than marginal cost. 
A)  Continue producing four units of output, because the firm is able to make an economic profit. 
B)  Increase output to six units, so that marginal cost equals marginal revenue. 
C)  Reduce price to $34, so that marginal cost will equal marginal revenue at 4 units of output. 
D)  Increase output to seven units so that price is less than marginal cost.

Question 11

Refer to Scenario 9.8 below to answer the question(s) that follow.
SCENARIO 9.8: Investors put up $1,040,000 to construct a building and purchase all equipment for a new gourmet cupcake bakery. The investors expect to earn a minimum return of 10 per cent on their investment. The bakery is open 52 weeks per year and sells 900 cupcakes per week. The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the fixed costs is the 10% return to the investors and $2,000 in other fixed costs. Variable costs include $2,000 in weekly wages, and $600 per week in materials, electricity, etc. The bakery charges $8 on average per cupcake.
-Refer to Scenario 9.8. The normal return to the investors on a weekly basis is

Accepted Answer

A)  $600. 
B)  $1,000. 
C)  $2,000. 
D)  $4,500. 
A)  $600. 
B)  $1,000. 
C)  $2,000. 
D)  $4,500.

Question 12

Refer to Scenario 9.9 below to answer the question(s) that follow.
SCENARIO 9.9: Sponsors invest $250,000 in a new greeting card business on the promise that they will earn a return of 10% per year on their investment. The business sells 52,000 greeting cards per year. The fixed costs for the business include the return to investors and $79,000 in other fixed costs. Variable costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($3,000 per week). The business is open 52 weeks per year.
-Refer to Scenario 9.9. The business is earning exactly a normal profit. Thus, the average price per greeting card must be ________.

Accepted Answer

A)  $1.52 
B)  $2 
C)  $4 
D)  $6 
A)  $1.52 
B)  $2 
C)  $4 
D)  $6

Question 13

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 profit is

Accepted Answer

A)  $0. 
B)  $20,000. 
C)  $30,000. 
D)  $40,000. 
A)  $0. 
B)  $20,000. 
C)  $30,000. 
D)  $40,000.

Question 14

The long-run industry supply curve ________ in an increasing-cost industry.

Accepted Answer

A)  slopes up 
B)  slopes down 
C)  is vertical 
D)  is horizontal 
A)  slopes up 
B)  slopes down 
C)  is vertical 
D)  is horizontal

Question 15

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 total cost will be

Accepted Answer

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

Question 16

A firm is earning an economic profit. In the short run the firm should ________. In the long run the firm should probably ________.

Accepted Answer

A)  shut down; expand 
B)  produce where MC = MR; leave the industry 
C)  produce where MC = MR; expand 
D)  shut down; exit the industry 
A)  shut down; expand 
B)  produce where MC = MR; leave the industry 
C)  produce where MC = MR; expand 
D)  shut down; exit the industry

Question 17

For economies of scale, a(n) ________ in a firm's scale of production leads to ________ average total cost.

Accepted Answer

A)  increase; lower 
B)  increase; higher 
C)  decrease; lower 
D)  decrease; no change in 
A)  increase; lower 
B)  increase; higher 
C)  decrease; lower 
D)  decrease; no change in

Question 18

Refer to Scenario 9.2 below to answer the question(s) that follow.
Scenario 9.1: Tom borrowed $40,000 from his parents to open a donut stand. He agrees to pay his parents a 5% yearly return on the money they lent him. His other yearly fixed costs equal $10,000. His variable costs equal $25,000. He sold 40,000 dozen donuts during the year at a price of $2.00 per dozen.
-Refer to Scenario 9.2. Tom's profit is

Accepted Answer

A)  $0. 
B)  $26,000. 
C)  $30,000. 
D)  $43,000. 
A)  $0. 
B)  $26,000. 
C)  $30,000. 
D)  $43,000.

Question 19

At all prices below the shutdown point, optimal short-run output is zero.

Accepted Answer

A) True 
 B)False

Question 20

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 is maximizing profits, his total revenue will be

Accepted Answer

A)  $90. 
B)  $135. 
C)  $180. 
D)  $240. 
A)  $90. 
B)  $135. 
C)  $180. 
D)  $240.

Exam 9: Long-Run Costs and Output Decisions

The horizontal sum of marginal cost curves (above AVC) of all the firms in an industry is the short-run industry supply curve.

The shutdown point for a perfectly competitive firm is the

Engineers for The Giffen Record Company have determined that a 35% increase in all compact disc inputs will cause a 45% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause ________ as output increases.

Which of the following is an example of economies of scale?

Refer to the information provided in Figure 9.2 below to answer the question(s) that follow. Figure 9.2 -Refer to Figure 9.2. If demand for wheat is D3, then in the long run

Economic profit is

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 is maximizing profits, his profit will be

Marginal revenue equals marginal cost at an output of 15 units. At this output, marginal revenue equals $30, average variable cost equals $20, and average total cost equals $25. In the short run, a profit-maximizing firm will earn a profit of

Refer to the data provided in Table 9.4 below to answer the question(s) that follow. Table 9.4 -Refer to Table 9.4. The market price is $84 and this firm is producing four units of output. Which of the following would you recommend to this firm?

The long-run industry supply curve ________ in an increasing-cost industry.

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 total cost will be

A firm is earning an economic profit. In the short run the firm should ________. In the long run the firm should probably ________.

For economies of scale, a(n) ________ in a firm's scale of production leads to ________ average total cost.

At all prices below the shutdown point, optimal short-run output is zero.

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 is maximizing profits, his total revenue will be

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

Refer to the information provided in Figure 9.2 below to answer the question(s) that follow. Figure 9.2 -Refer to Figure 9.2. If demand for wheat is D₃, then in the long run

A firm is earning an economic profit. In the short run the firm should . In the long run the firm should probably .

For economies of scale, a(n) in a firm's scale of production leads to average total cost.