Question 1

Which of the following refers to a short run phenomenon?

Accepted Answer

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

Question 2

Assume the market for beef is perfectly competitive. Beef producers are currently earning a zero economic profit. If consumers switch from beef to chicken, which of the following is most likely to occur?

Accepted Answer

A)  Beef producers will now incur economic losses in both the short run and the long run. 
B)  Beef producers will incur economic losses in the short run. Some producers will exit the industry until those remaining are earning a zero economic profit. 
C)  Beef producers will incur economic losses in the short run. Some producers will exit the industry until those remaining are earning an economic profit. 
D)  Beef producers will now earn economic profits in the short run, and there will be no additional adjustments in the long run. 
A)  Beef producers will now incur economic losses in both the short run and the long run. 
B)  Beef producers will incur economic losses in the short run. Some producers will exit the industry until those remaining are earning a zero economic profit. 
C)  Beef producers will incur economic losses in the short run. Some producers will exit the industry until those remaining are earning an economic profit. 
D)  Beef producers will now earn economic profits in the short run, and there will be no additional adjustments in the long run.

Question 3

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 D1, then in the long run

Accepted Answer

A)  the firm will increase its price and output. 
B)  the firm will exit the industry. 
C)  new firms will enter the industry, and the current firms will expand production. 
D)  firms will increase their output so that their average fixed cost per unit falls. 
A)  the firm will increase its price and output. 
B)  the firm will exit the industry. 
C)  new firms will enter the industry, and the current firms will expand production. 
D)  firms will increase their output so that their average fixed cost per unit falls.

Question 4

Refer to the information provided in Figure 9.6 below to answer the question(s) that follow.   Figure 9.6
-Refer to Figure 9.6. Economies of scale exist up to ________ units of output for this firm.

Accepted Answer

A)  q1 
B)  q2 
C)  q3 
D)  q4 
A)  q1 
B)  q2 
C)  q3 
D)  q4

Question 5

Information on MC of production is all that is necessary to obtain the long run industry supply curve, because P = MC is the profit-maximization condition for all firms.

Accepted Answer

A) True 
 B)False

Question 6

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. The restaurant's weekly economic profit is

Accepted Answer

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

Question 7

Assume the peanut industry, a perfectly competitive industry, is in long-run equilibrium with a market price of $5. If demand for peanuts increases and this industry is a decreasing-cost industry, long-run equilibrium will be reestablished at a price

Accepted Answer

A)  greater than $5. 
B)  less than $5. 
C)  equal to $5. 
D)  either greater than or less than $5, depending on the number of firms that enter the industry. 
A)  greater than $5. 
B)  less than $5. 
C)  equal to $5. 
D)  either greater than or less than $5, depending on the number of firms that enter the industry.

Question 8

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 = $7, then a profit-maximizing firm will produce ________ units and earn a profit of ________.

Accepted Answer

A)  13; $0 
B)  7; $0 
C)  13; $91 
D)  15; $30 
A)  13; $0 
B)  7; $0 
C)  13; $91 
D)  15; $30

Question 9

A firm earns a profit if

Accepted Answer

A)  total revenue exceeds the total cost of production. 
B)  total revenue equals total fixed costs. 
C)  price is less than the total cost of production. 
D)  price equals marginal cost. 
A)  total revenue exceeds the total cost of production. 
B)  total revenue equals total fixed costs. 
C)  price is less than the total cost of production. 
D)  price equals marginal cost.

Question 10

In the short run average costs eventually increase because of ________, and in the long run average costs eventually increase because of ________.

Accepted Answer

A)  diminishing returns; diseconomies of scale 
B)  diseconomies of scale; diminishing returns 
C)  constant returns to scale; decreasing returns to scale 
D)  increasing returns to scale; diseconomies of scale 
A)  diminishing returns; diseconomies of scale 
B)  diseconomies of scale; diminishing returns 
C)  constant returns to scale; decreasing returns to scale 
D)  increasing returns to scale; diseconomies of scale

Question 11

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. If the restaurant were to shut down, losses per week would be

Accepted Answer

A)  $1,000. 
B)  $1,600. 
C)  $2,000. 
D)  $3,600. 
A)  $1,000. 
B)  $1,600. 
C)  $2,000. 
D)  $3,600.

Question 12

If the price of an input increases, each individual firm's marginal cost curve shifts ________ and the industry supply curve ________.

Accepted Answer

A)  downward; shifts to the left 
B)  downward; shifts to the right 
C)  up; does not change 
D)  up; shifts to the left 
A)  downward; shifts to the left 
B)  downward; shifts to the right 
C)  up; does not change 
D)  up; shifts to the left

Question 13

Refer to the information provided in Figure 9.7 below to answer the question(s) that follow.   Figure 9.7
-Refer to Figure 9.7. Industry demand is initially D1 and industry supply is initially S1 in this increasing cost industry. If ________, then in the long run the industry will move to point E.

Accepted Answer

A)  supply decreases to S2 
B)  supply remains at S1 
C)  demand increases to D2 
D)  demand decreases to D2 
A)  supply decreases to S2 
B)  supply remains at S1 
C)  demand increases to D2 
D)  demand decreases to D2

Question 14

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 variable costs per week are

Accepted Answer

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

Question 15

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 D1, then a profit-maximizing firm will produce ________ units and earn ________.

Accepted Answer

A)  0; negative profits 
B)  5; zero profits 
C)  10; negative profits 
D)  12; positive profits 
A)  0; negative profits 
B)  5; zero profits 
C)  10; negative profits 
D)  12; positive profits

Question 16

Refer to Scenario 9.10 below to answer the question(s) that follow.
SCENARIO 9.10: Investors put up $1,040,000 to construct a building and purchase all equipment for a new cafe. The investors expect to earn a minimum return of 10 percent on their investment. The cafe 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 $2,000 in other fixed costs. Variable costs include $2,000 in weekly wages, and $600 per week in materials, electricity, etc. The cafe charges $6 on average per meal.
-Refer to Scenario 9.10. In the long run, the cafe will want to

Accepted Answer

A)  operate and expand. 
B)  operate but not expand. 
C)  shut down but not go out of business. 
D)  go out of business. 
A)  operate and expand. 
B)  operate but not expand. 
C)  shut down but not go out of business. 
D)  go out of business.

Question 17

The shape of a firm's long-run ________ depends on how costs vary with scale of operations.

Accepted Answer

A)  fixed cost curve 
B)  variable cost curve 
C)  average cost curve 
D)  marginal revenue curve 
A)  fixed cost curve 
B)  variable cost curve 
C)  average cost curve 
D)  marginal revenue curve

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 total costs equal

Accepted Answer

A)  $37,000. 
B)  $40,000. 
C)  $50,000. 
D)  $59,000. 
A)  $37,000. 
B)  $40,000. 
C)  $50,000. 
D)  $59,000.

Question 19

When long-run average costs increase 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 20

When firms earn above normal rates of return

Accepted Answer

A)  they are able to raise their prices to increase their profits. 
B)  they are earning positive profits and new firms are likely to enter the industry. 
C)  they tend to leave the industry and seek profits elsewhere. 
D)  they are still breaking even economically. 
A)  they are able to raise their prices to increase their profits. 
B)  they are earning positive profits and new firms are likely to enter the industry. 
C)  they tend to leave the industry and seek profits elsewhere. 
D)  they are still breaking even economically.

Exam 9: Long-Run Costs and Output Decisions

Which of the following refers to a short run phenomenon?

Assume the market for beef is perfectly competitive. Beef producers are currently earning a zero economic profit. If consumers switch from beef to chicken, which of the following is most likely to occur?

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 D1, then in the long run

Refer to the information provided in Figure 9.6 below to answer the question(s) that follow. Figure 9.6 -Refer to Figure 9.6. Economies of scale exist up to ________ units of output for this firm.

Information on MC of production is all that is necessary to obtain the long run industry supply curve, because P = MC is the profit-maximization condition for all firms.

Assume the peanut industry, a perfectly competitive industry, is in long-run equilibrium with a market price of $5. If demand for peanuts increases and this industry is a decreasing-cost industry, long-run equilibrium will be reestablished at a price

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 = $7, then a profit-maximizing firm will produce ________ units and earn a profit of ________.

A firm earns a profit if

In the short run average costs eventually increase because of ________, and in the long run average costs eventually increase because of ________.

If the price of an input increases, each individual firm's marginal cost curve shifts ________ and the industry supply curve ________.

Refer to the information provided in Figure 9.7 below to answer the question(s) that follow. Figure 9.7 -Refer to Figure 9.7. Industry demand is initially D1 and industry supply is initially S1 in this increasing cost industry. If ________, then in the long run the industry will move to point E.

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 D1, then a profit-maximizing firm will produce ________ units and earn ________.

The shape of a firm's long-run ________ depends on how costs vary with scale of operations.

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

When firms earn above normal rates of return

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 D₁, then 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 = $7, then a profit-maximizing firm will produce units and earn a profit of .

In the short run average costs eventually increase because of , and in the long run average costs eventually increase because of .

If the price of an input increases, each individual firm's marginal cost curve shifts and the industry supply curve .

Refer to the information provided in Figure 9.7 below to answer the question(s) that follow. Figure 9.7 -Refer to Figure 9.7. Industry demand is initially D₁and industry supply is initially S₁ in this increasing cost industry. If ________, then in the long run the industry will move to point E.

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 D₁, then a profit-maximizing firm will produce units and earn .