Question 1

Which of the following is the set of conditions necessary for long-run equilibrium for a perfectly competitive firm?

Accepted Answer

A)  P = SRMC  SRMC = SRAC = LRAC 
C)  P = SRMC = SRAC > LRAC 
D)  P = SRMC = SRAC = LRAC 
A)  P = SRMC  SRMC = SRAC = LRAC 
C)  P = SRMC = SRAC > LRAC 
D)  P = SRMC = SRAC = LRAC

Question 2

If TR > TC, a firm would ________ in the short run and ________ in the long run.

Accepted Answer

A)  operate; expand 
B)  operate; contract 
C)  shut down; expand 
D)  shut down; contract 
A)  operate; expand 
B)  operate; contract 
C)  shut down; expand 
D)  shut down; contract

Question 3

An industry is in ________ if firms have no 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 4

In the long run firms will expand as long as there are more ________, and new firms will enter the industry as long as they earn ________.

Accepted Answer

A)  economies of scale; zero profits 
B)  economies of scale; positive economic profits 
C)  diseconomies of scale; zero profits 
D)  diseconomies of scale; positive economic profits 
A)  economies of scale; zero profits 
B)  economies of scale; positive economic profits 
C)  diseconomies of scale; zero profits 
D)  diseconomies of scale; positive economic profits

Question 5

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. The firm's ________ point is at a price of $6.

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 6

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 total revenue was

Accepted Answer

A)  $30,000. 
B)  $40,000. 
C)  $45,000. 
D)  $80,000. 
A)  $30,000. 
B)  $40,000. 
C)  $45,000. 
D)  $80,000.

Question 7

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. Total fixed costs per week are

Accepted Answer

A)  $1,000. 
B)  $2,000. 
C)  $3,000. 
D)  $4,000. 
A)  $1,000. 
B)  $2,000. 
C)  $3,000. 
D)  $4,000.

Question 8

The marginal cost curve of a firm above AVC is also its short-run supply curve.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

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

Question 10

Refer to the data provided in Table 9.2 below to answer the question(s) that follow.
Table 9.2  
-The short-run supply curve of a competitive firm is the portion of

Accepted Answer

A)  the average variable cost curve that lies above its marginal cost curve. 
B)  its marginal cost curve that lies above its average variable cost curve. 
C)  its marginal cost curve that lies above its average total cost curve. 
D)  its average total cost curve that lies above its marginal cost curve. 
A)  the average variable cost curve that lies above its marginal cost curve. 
B)  its marginal cost curve that lies above its average variable cost curve. 
C)  its marginal cost curve that lies above its average total cost curve. 
D)  its average total cost curve that lies above its marginal cost curve.

Question 11

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. This farmer would earn a zero economic profit if price was

Accepted Answer

A)  $7. 
B)  $9. 
C)  $10. 
D)  $11. 
A)  $7. 
B)  $9. 
C)  $10. 
D)  $11.

Question 12

An industry with a ________ long-run supply curve is called an increasing-cost industry.

Accepted Answer

A)  negative sloping 
B)  horizontal 
C)  positive sloping 
D)  backward bending 
A)  negative sloping 
B)  horizontal 
C)  positive sloping 
D)  backward bending

Question 13

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. Total variable costs per week are

Accepted Answer

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

Question 14

Economic profit is

Accepted Answer

A)  TR -TC. 
B)  TR -TFC. 
C)  TR -TVC. 
D)  TVC -TFC. 
A)  TR -TC. 
B)  TR -TFC. 
C)  TR -TVC. 
D)  TVC -TFC.

Question 15

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 shuts down, it ________ variable costs and ________ revenue.

Accepted Answer

A)  has; earns 
B)  has; earns no 
C)  has no; earns 
D)  has no; earns no 
A)  has; earns 
B)  has; earns no 
C)  has no; earns 
D)  has no; earns no

Question 16

New investors are not attracted to an industry and current ones are not exiting the industry if firms in the industry are

Accepted Answer

A)  breaking even. 
B)  earning an economic profit. 
C)  suffering an economic loss. 
D)  earning an accounting profit. 
A)  breaking even. 
B)  earning an economic profit. 
C)  suffering an economic loss. 
D)  earning an accounting profit.

Question 17

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 profit is

Accepted Answer

A)  $0. 
B)  $20,000. 
C)  $30,000. 
D)  $50,000. 
A)  $0. 
B)  $20,000. 
C)  $30,000. 
D)  $50,000.

Question 18

As long as economic profits are being earned in an industry, firms will ________ the industry and the supply curve will shift to the ________.

Accepted Answer

A)  enter; right 
B)  enter; left 
C)  exit; left 
D)  exit; right 
A)  enter; right 
B)  enter; left 
C)  exit; left 
D)  exit; right

Question 19

If TR > TVC but TR < TC, a firm would ________ in the short run and ________ in the long run.

Accepted Answer

A)  operate; expand 
B)  operate; exit the industry 
C)  shut down; expand 
D)  shut down; exit the industry 
A)  operate; expand 
B)  operate; exit the industry 
C)  shut down; expand 
D)  shut down; exit the industry

Question 20

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 MR = $9, then a profit-maximizing firm will produce ________ units and earn ________.

Accepted Answer

A)  15; positive profits 
B)  9; positive profits 
C)  12; negative profits 
D)  13; exactly a normal return 
A)  15; positive profits 
B)  9; positive profits 
C)  12; negative profits 
D)  13; exactly a normal return

Exam 9: Long-Run Costs and Output Decisions

Which of the following is the set of conditions necessary for long-run equilibrium for a perfectly competitive firm?

If TR > TC, a firm would ________ in the short run and ________ in the long run.

An industry is in ________ if firms have no incentive to enter or exit in the ________ run.

In the long run firms will expand as long as there are more ________, and new firms will enter the industry as long as they earn ________.

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. The firm's ________ point is at a price of $6.

The marginal cost curve of a firm above AVC is also its short-run supply curve.

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

Refer to the data provided in Table 9.2 below to answer the question(s) that follow. Table 9.2 -The short-run supply curve of a competitive firm is the portion of

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. This farmer would earn a zero economic profit if price was

An industry with a ________ long-run supply curve is called an increasing-cost industry.

Economic profit is

New investors are not attracted to an industry and current ones are not exiting the industry if firms in the industry are

As long as economic profits are being earned in an industry, firms will ________ the industry and the supply curve will shift to the ________.

If TR > TVC but TR < TC, a firm would ________ in the short run and ________ in the long run.

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 MR = $9, then a profit-maximizing firm will produce ________ units and earn ________.

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

If TR > TC, a firm would in the short run and in the long run.

An industry is in if firms have no incentive to enter or exit in the run.

In the long run firms will expand as long as there are more , and new firms will enter the industry as long as they earn .

As long as economic profits are being earned in an industry, firms will the industry and the supply curve will shift to the .

If TR > TVC but TR < TC, a firm would in the short run and in the long run.

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 MR = $9, then a profit-maximizing firm will produce units and earn .