Question 1

If a firm shuts down in the short run, then

Accepted Answer

A)  its economic profits are zero. 
B)  its losses are equal to its fixed costs. 
C)  its fixed costs are greater than its variable costs. 
D)  it must be the case that its revenues from operating were less than its total costs. 
A)  its economic profits are zero. 
B)  its losses are equal to its fixed costs. 
C)  its fixed costs are greater than its variable costs. 
D)  it must be the case that its revenues from operating were less than its total costs.

Question 2

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. The type of industry depicted in this situation is

Accepted Answer

A)  an increasing-cost industry. 
B)  a decreasing-cost industry. 
C)  a constant-cost industry. 
D)  impossible to determine from this information. 
A)  an increasing-cost industry. 
B)  a decreasing-cost industry. 
C)  a constant-cost industry. 
D)  impossible to determine from this information.

Question 3

Engineers for The All-Terrain Bike Company determine that a 10% increase in all inputs will cause an equal percentage increase in output. Assuming that input prices remain constant, you correctly deduce that such a change in inputs 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 4

Refer to Scenario 9.7 below to answer the question(s) that follow.
SCENARIO 9.7: Julio borrowed $80,000 from his great aunt to open a coffee stand at a local flea market. He agrees to pay his great aunt a 5% yearly return on the money she lent him. His other yearly fixed costs equal $16,000. His variable costs equal $60,000. He sold 50,000 cups of coffee during the year at a price of $3.00 per cup.
-Refer to Scenario 9.7. Julio's total revenue is

Accepted Answer

A)  $60,000. 
B)  $80,000. 
C)  $100,000. 
D)  $150,000. 
A)  $60,000. 
B)  $80,000. 
C)  $100,000. 
D)  $150,000.

Question 5

The short-run industry supply curve for a perfectly competitive industry is the

Accepted Answer

A)  horizontal sum of the individual firms' marginal cost curves above AVC. 
B)  vertical sum of the individual firms' marginal cost curves above AVC. 
C)  horizontal sum of the individual firms' marginal cost curves above ATC. 
D)  vertical sum of the individual firms' marginal cost curves above ATC. 
A)  horizontal sum of the individual firms' marginal cost curves above AVC. 
B)  vertical sum of the individual firms' marginal cost curves above AVC. 
C)  horizontal sum of the individual firms' marginal cost curves above ATC. 
D)  vertical sum of the individual firms' marginal cost curves above ATC.

Question 6

A delivery company lowers its automobile insurance costs as it increases in size because as the size of the fleet of delivery trucks increases, the premium per driver decreases substantially. This is an example of

Accepted Answer

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

Question 7

When a perfectly competitive firm produces where AVC < P < ATC, this is called a

Accepted Answer

A)  loss-minimizing strategy. 
B)  loss-maximizing strategy. 
C)  profit-minimizing strategy. 
D)  break-even position. 
A)  loss-minimizing strategy. 
B)  loss-maximizing strategy. 
C)  profit-minimizing strategy. 
D)  break-even position.

Question 8

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

Accepted Answer

A)  operate; expand 
B)  operate; exit the industry 
C)  not operate; expand 
D)  shut down; exit the industry 
A)  operate; expand 
B)  operate; exit the industry 
C)  not operate; expand 
D)  shut down; exit the industry

Question 9

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

Accepted Answer

A)  $2,000. 
B)  $3,600. 
C)  $4,000. 
D)  $7,200. 
A)  $2,000. 
B)  $3,600. 
C)  $4,000. 
D)  $7,200.

Question 10

Engineers for the Off Road Skateboard Company determine that a 12% increase in all inputs will cause a smaller percentage increase in output. Assuming that input prices remain constant, you correctly deduce that such a change in inputs will cause ________ as output increases.

Accepted Answer

A)  total costs to decrease 
B)  average costs to increase 
C)  average costs to decrease 
D)  average fixed costs to increase 
A)  total costs to decrease 
B)  average costs to increase 
C)  average costs to decrease 
D)  average fixed costs to increase

Question 11

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 = $5, 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 12

A firm will ________ in the short run if variable costs exceed revenues.

Accepted Answer

A)  earn a profit 
B)  produce at a loss 
C)  break even 
D)  shut down 
A)  earn a profit 
B)  produce at a loss 
C)  break even 
D)  shut down

Question 13

Assume the market for orange juice is perfectly competitive. Orange juice producers currently earn a zero economic profit. Orange juice producers will likely begin to earn economic profits in the short run, and some producers will enter the industry until all firms in the industry earn a zero economic profit, if consumers

Accepted Answer

A)  switch from grape juice to orange juice. 
B)  switch from orange juice to grape juice. 
C)  do not change their demand for orange juice. 
D)  All of the above are correct. 
A)  switch from grape juice to orange juice. 
B)  switch from orange juice to grape juice. 
C)  do not change their demand for orange juice. 
D)  All of the above are correct.

Question 14

Refer to Scenario 9.4 below to answer the question(s) that follow.
Scenario 9.4: Sponsors invest $100,000 in a new deli on the promise that they will earn a return of 10% per year on their investment. The deli sells 52,000 sandwiches per year. The deli's fixed costs include the return to investors and $42,000 in other fixed costs. Variable costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($2,000 per week). The deli is open 52 weeks per year.
-Refer to Scenario 9.4. The annual total costs of the deli are ________.

Accepted Answer

A)  $42,000 
B)  $52,000 
C)  $156,000 
D)  $208,000 
A)  $42,000 
B)  $52,000 
C)  $156,000 
D)  $208,000

Question 15

Related to the Economics in Practice on page 195: If the long-run average cost curve in an industry has a long, flat section, which of the following must be true?

Accepted Answer

A)  There is no single point on the curve that is the best. 
B)  Small firms have higher average costs than large firms. 
C)  Existing firms have no incentive to expand. 
D)  There would be no difference between the industry's short-run average cost curve and its long-run average cost curve. 
A)  There is no single point on the curve that is the best. 
B)  Small firms have higher average costs than large firms. 
C)  Existing firms have no incentive to expand. 
D)  There would be no difference between the industry's short-run average cost curve and its long-run average cost curve.

Question 16

Industries in which firms ________ are likely to contract in the long-run.

Accepted Answer

A)  have positive profits 
B)  suffer losses 
C)  break even 
D)  have no competition 
A)  have positive profits 
B)  suffer losses 
C)  break even 
D)  have no competition

Question 17

For a perfectly competitive industry, diminishing marginal returns

Accepted Answer

A)  occur only in the short run. 
B)  occur only in the long run. 
C)  occur in both the short run and in the long run. 
D)  Diminishing marginal returns do not occur in perfectly competitive industries. 
A)  occur only in the short run. 
B)  occur only in the long run. 
C)  occur in both the short run and in the long run. 
D)  Diminishing marginal returns do not occur in perfectly competitive industries.

Question 18

If the price of an input increases, each individual firm's ________ shifts upward and the ________ shifts to the left.

Accepted Answer

A)  marginal revenue curve; marginal cost curve 
B)  marginal cost curve; industry supply curve 
C)  demand curve; industry supply curve 
D)  supply curve; marginal cost curve 
A)  marginal revenue curve; marginal cost curve 
B)  marginal cost curve; industry supply curve 
C)  demand curve; industry supply curve 
D)  supply curve; marginal cost curve

Question 19

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. Assume this firm is in a constant-cost industry. For this firm to be in long-run equilibrium, the firm must be producing

Accepted Answer

A)  q1 units of output. 
B)  q2 units of output. 
C)  q3 units of output. 
D)  an amount that is indeterminate from this information. 
A)  q1 units of output. 
B)  q2 units of output. 
C)  q3 units of output. 
D)  an amount that is indeterminate from this information.

Question 20

Industries in which firms are suffering losses are likely to ________ in the long run.

Accepted Answer

A)  expand 
B)  contract 
C)  neither expand nor contract, as firms must earn an economic profit to stay in business 
D)  expand or contract depending on the normal rate of return 
A)  expand 
B)  contract 
C)  neither expand nor contract, as firms must earn an economic profit to stay in business 
D)  expand or contract depending on the normal rate of return

Exam 9: Long-Run Costs and Output Decisions

If a firm shuts down in the short run, then

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. The type of industry depicted in this situation is

Engineers for The All-Terrain Bike Company determine that a 10% increase in all inputs will cause an equal percentage increase in output. Assuming that input prices remain constant, you correctly deduce that such a change in inputs will cause ________ as output increases.

The short-run industry supply curve for a perfectly competitive industry is the

A delivery company lowers its automobile insurance costs as it increases in size because as the size of the fleet of delivery trucks increases, the premium per driver decreases substantially. This is an example of

When a perfectly competitive firm produces where AVC < P < ATC, this is called a

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

Engineers for the Off Road Skateboard Company determine that a 12% increase in all inputs will cause a smaller percentage increase in output. Assuming that input prices remain constant, you correctly deduce that such a change in inputs will cause ________ as output increases.

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 = $5, then in the long run

A firm will ________ in the short run if variable costs exceed revenues.

Related to the Economics in Practice on page 195: If the long-run average cost curve in an industry has a long, flat section, which of the following must be true?

Industries in which firms ________ are likely to contract in the long-run.

For a perfectly competitive industry, diminishing marginal returns

If the price of an input increases, each individual firm's ________ shifts upward and the ________ shifts to the left.

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. Assume this firm is in a constant-cost industry. For this firm to be in long-run equilibrium, the firm must be producing

Industries in which firms are suffering losses are likely to ________ in the long run.

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 < TVC, a firm would in the short run and in the long run.

If the price of an input increases, each individual firm's shifts upward and the shifts to the left.