Question 1

Assume firms break even in an industry. New firms ________ attracted to the industry and current ones ________ exiting it.

Accepted Answer

A)  are not; are not 
B)  are not; are 
C)  are; are not 
D)  are; are 
A)  are not; are not 
B)  are not; are 
C)  are; are not 
D)  are; are

Question 2

If total revenue exceeds the total cost of production, a firm

Accepted Answer

A)  earns a profit. 
B)  suffers a loss. 
C)  breaks even. 
D)  shuts down. 
A)  earns a profit. 
B)  suffers a loss. 
C)  breaks even. 
D)  shuts down.

Question 3

Refer to Scenario 9.3 below to answer the question(s) that follow.
Scenario 9.3: Investors put up $520,000 to construct a building and purchase all equipment for a new restaurant. The investors expect to earn a minimum return of 10 per cent on their investment. The restaurant is open 52 weeks per year and serves 900 meals 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 $1,000 per week in other fixed costs. Variable costs include $1,000 in weekly wages and $600 per week for materials, electricity, etc. The restaurant charges $5 on average per meal.
-Refer to Scenario 9.3. The normal return to the investors on a weekly basis is

Accepted Answer

A)  $600. 
B)  $1,000. 
C)  $3,600. 
D)  $4,500. 
A)  $600. 
B)  $1,000. 
C)  $3,600. 
D)  $4,500.

Question 4

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. Suppose demand for wheat is initially D2. If consumer incomes decrease, then demand for wheat will shift to ________. This will ________ the equilibrium price of wheat and individual profit-maximizing firms will produce ________ bushels of wheat.

Accepted Answer

A)  D3; increase; 15 
B)  D1; increase; 10 
C)  D3; decrease; 7 
D)  D1; decrease; 0 
A)  D3; increase; 15 
B)  D1; increase; 10 
C)  D3; decrease; 7 
D)  D1; decrease; 0

Question 5

An industry is in ________ if firms have an incentive to enter or exit in the ________ run.

Accepted Answer

A)  disequilibrium; short 
B)  disequilibrium; long 
C)  equilibrium; short 
D)  equilibrium; long 
A)  disequilibrium; short 
B)  disequilibrium; long 
C)  equilibrium; short 
D)  equilibrium; long

Question 6

As new firms enter an increasing-cost industry

Accepted Answer

A)  the LRAC curve shifts down. 
B)  the LRAC curve shifts up. 
C)  the position of the LRAC curve doesn't change, but firms move down their LRAC curve. 
D)  the position of the LRAC curve doesn't change, but firms move up their LRAC curve. 
A)  the LRAC curve shifts down. 
B)  the LRAC curve shifts up. 
C)  the position of the LRAC curve doesn't change, but firms move down their LRAC curve. 
D)  the position of the LRAC curve doesn't change, but firms move up their LRAC curve.

Question 7

Refer to Scenario 9.5 below to answer the question(s) that follow.
SCENARIO 9.5: Investors put up $520,000 to construct a building and purchase all equipment for a new restaurant. The investors expect to earn a minimum return of 10 percent on their investment. The restaurant is open 52 weeks per year and serves 900 meals 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 $1,000 per week in other fixed costs. Variable costs include $1,000 in weekly wages and $600 per week for materials, electricity, etc. The restaurant charges $3 on average per meal.
-Refer to Scenario 9.5. In the short run, if the restaurant decides to stay open, it will make operating profits of

Accepted Answer

A)  ‐$1,100. 
B)  $0. 
C)  $1,100. 
D)  $2,700. 
A)  ‐$1,100. 
B)  $0. 
C)  $1,100. 
D)  $2,700.

Question 8

For a perfectly competitive industry, a decline in technology will cause

Accepted Answer

A)  a movement up the short-run industry supply curve. 
B)  a movement down the short-run industry supply curve. 
C)  the industry short-run supply curve to shift to the right. 
D)  the industry short-run supply curve to shift to the left. 
A)  a movement up the short-run industry supply curve. 
B)  a movement down the short-run industry supply curve. 
C)  the industry short-run supply curve to shift to the right. 
D)  the industry short-run supply curve to shift to the left.

Question 9

Tony's Taco Casa has total revenue of $12,500. It has total fixed costs of $2,400 and total variable costs of $4,600. Tony's Taco Casa's profit is

Accepted Answer

A)  $2,200. 
B)  $5,500. 
C)  $7,900. 
D)  $10,100. 
A)  $2,200. 
B)  $5,500. 
C)  $7,900. 
D)  $10,100.

Question 10

Related to the Economics in Practice on page 195: If firms have long-run average cost curves with a long, flat section

Accepted Answer

A)  their long run supply curves are downward sloping. 
B)  the optimal number of firms in the industry is one. 
C)  larger firms have a cost advantage over smaller firms. 
D)  it is impossible to predict the size of the firm. 
A)  their long run supply curves are downward sloping. 
B)  the optimal number of firms in the industry is one. 
C)  larger firms have a cost advantage over smaller firms. 
D)  it is impossible to predict the size of the firm.

Question 11

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 fixed costs equal

Accepted Answer

A)  $1,000. 
B)  $9,000. 
C)  $10,000. 
D)  $21,000. 
A)  $1,000. 
B)  $9,000. 
C)  $10,000. 
D)  $21,000.

Question 12

If ________, a firm would operate in the short run and exit the industry in the long run.

Accepted Answer

A)  TR > TVC and TR > TC 
B)  TR > TVC but TR  TC 
A)  TR > TVC and TR > TC 
B)  TR > TVC but TR  TC

Question 13

The long run industry supply curve is made up of the zero-profit equilibrium levels of output as the industry expands due to entry of new firms.

Accepted Answer

A) True 
 B)False

Question 14

Refer to Scenario 9.3 below to answer the question(s) that follow.
Scenario 9.3: Investors put up $520,000 to construct a building and purchase all equipment for a new restaurant. The investors expect to earn a minimum return of 10 per cent on their investment. The restaurant is open 52 weeks per year and serves 900 meals 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 $1,000 per week in other fixed costs. Variable costs include $1,000 in weekly wages and $600 per week for materials, electricity, etc. The restaurant charges $5 on average per meal.
-Refer to Scenario 9.3. The restaurant is making ________ economic profits per week.

Accepted Answer

A)  positive 
B)  zero 
C)  negative 
D)  break-even 
A)  positive 
B)  zero 
C)  negative 
D)  break-even

Question 15

When an increase of a firm's scale of production leads to higher average costs per unit produced, there is an increasing return to scale.

Accepted Answer

A) True 
 B)False

Question 16

On the downward sloping portion of a firm's long-run average cost curve, it is experiencing

Accepted Answer

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

Question 17

If revenue is less than ________, profit is ________.

Accepted Answer

A)  total cost; negative 
B)  total fixed cost; positive 
C)  total variable cost; zero 
D)  total cost; positive 
A)  total cost; negative 
B)  total fixed cost; positive 
C)  total variable cost; zero 
D)  total cost; positive

Question 18

A firm can minimize its losses by shutting down when ________ are less than ________ costs.

Accepted Answer

A)  variable costs; fixed 
B)  fixed costs; variable 
C)  revenues; variable 
D)  operating profits; sunk 
A)  variable costs; fixed 
B)  fixed costs; variable 
C)  revenues; variable 
D)  operating profits; sunk

Question 19

Economies of scale cannot be due only to the sheer size of a firm's operation.

Accepted Answer

A) True 
 B)False

Question 20

Sources of ________ include larger industry size resulting in lower production costs.

Accepted Answer

A)  external diseconomies of scale 
B)  internal diseconomies of scale 
C)  external economies of scale 
D)  internal constant returns to scale 
A)  external diseconomies of scale 
B)  internal diseconomies of scale 
C)  external economies of scale 
D)  internal constant returns to scale

Exam 9: Long-Run Costs and Output Decisions

Assume firms break even in an industry. New firms ________ attracted to the industry and current ones ________ exiting it.

If total revenue exceeds the total cost of production, a firm

An industry is in ________ if firms have an incentive to enter or exit in the ________ run.

As new firms enter an increasing-cost industry

For a perfectly competitive industry, a decline in technology will cause

Tony's Taco Casa has total revenue of $12,500. It has total fixed costs of $2,400 and total variable costs of $4,600. Tony's Taco Casa's profit is

Related to the Economics in Practice on page 195: If firms have long-run average cost curves with a long, flat section

If ________, a firm would operate in the short run and exit the industry in the long run.

The long run industry supply curve is made up of the zero-profit equilibrium levels of output as the industry expands due to entry of new firms.

When an increase of a firm's scale of production leads to higher average costs per unit produced, there is an increasing return to scale.

On the downward sloping portion of a firm's long-run average cost curve, it is experiencing

If revenue is less than ________, profit is ________.

A firm can minimize its losses by shutting down when ________ are less than ________ costs.

Economies of scale cannot be due only to the sheer size of a firm's operation.

Sources of ________ include larger industry size resulting in lower production costs.

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

Assume firms break even in an industry. New firms attracted to the industry and current ones exiting it.

An industry is in if firms have an incentive to enter or exit in the run.

If revenue is less than , profit is .

A firm can minimize its losses by shutting down when are less than costs.