Question 1

As existing firms exit 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 2

Assume the tennis ball industry, a perfectly competitive, decreasing‐cost industry, is in long-run equilibrium with a market price of $5. If the demand for tennis balls decreases, 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 3

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

Accepted Answer

A)  -$200. 
B)  -$100. 
C)  $200. 
D)  $400. 
A)  -$200. 
B)  -$100. 
C)  $200. 
D)  $400.

Question 4

A firm suffering short-run losses will continue to operate rather than shut down when price is less than its average variable costs.

Accepted Answer

A) True 
 B)False

Question 5

Refer to the information provided in Figure 9.5 below to answer the question that follows.   Figure 9.5
-Refer to Figure 9.5. From the diagram, existing firms in this industry make ________ economic profits, and as long as this continues, ________.

Accepted Answer

A)  negative; new firms will not enter it and existing firms will leave it 
B)  zero; new firms will not enter it and existing firms will not leave it either 
C)  positive; new firms will enter the industry and existing firms will not leave it 
D)  positive; the industry supply curve will shift to the left 
A)  negative; new firms will not enter it and existing firms will leave it 
B)  zero; new firms will not enter it and existing firms will not leave it either 
C)  positive; new firms will enter the industry and existing firms will not leave it 
D)  positive; the industry supply curve will shift to the left

Question 6

In efficient markets, ________ flows toward ________ opportunities.

Accepted Answer

A)  investment capital; consumption 
B)  investment capital; profit 
C)  consumption; profit 
D)  consumption; investment 
A)  investment capital; consumption 
B)  investment capital; profit 
C)  consumption; profit 
D)  consumption; investment

Question 7

A firm is experiencing ________ on the downward sloping portion of a firm's long run average cost curve.

Accepted Answer

A)  increasing returns to scale 
B)  constant returns to scale 
C)  decreasing returns to scale 
D)  diminishing marginal returns 
A)  increasing returns to scale 
B)  constant returns to scale 
C)  decreasing returns to scale 
D)  diminishing marginal returns

Question 8

A firm will choose to shut down rather than operate as long as

Accepted Answer

A)  price is greater than or equal to AFC. 
B)  AVC is greater than AFC. 
C)  price is less than AVC. 
D)  MC is greater than AVC. 
A)  price is greater than or equal to AFC. 
B)  AVC is greater than AFC. 
C)  price is less than AVC. 
D)  MC is greater than AVC.

Question 9

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

Accepted Answer

A)  have positive profits 
B)  suffer losses 
C)  break even 
D)  shut down in the short run 
A)  have positive profits 
B)  suffer losses 
C)  break even 
D)  shut down in the short run

Question 10

[(P - ATC)q] represents

Accepted Answer

A)  economic profit. 
B)  total revenue. 
C)  total cost. 
D)  average fixed cost. 
A)  economic profit. 
B)  total revenue. 
C)  total cost. 
D)  average fixed cost.

Question 11

Refer to the information provided in Figure 9.3 below to answer the question(s) that follow.   Figure 9.3
-Refer to Figure 9.3. This firm will ________ if price is $13.

Accepted Answer

A)  earn a positive economic profit 
B)  suffer an economic loss 
C)  break even 
D)  shut down 
A)  earn a positive economic profit 
B)  suffer an economic loss 
C)  break even 
D)  shut down

Question 12

Refer to the data provided in Table 9.1 below to answer the question(s) that follow.
Table 9.1  
-Refer to Table 9.1. If the market price is $17, then in the short run the firm will

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 13

Internal economies of scale occur at the ________ levels.

Accepted Answer

A)  plant and firm 
B)  plant and industry 
C)  firm and industry 
D)  plant, firm, and industry 
A)  plant and firm 
B)  plant and industry 
C)  firm and industry 
D)  plant, firm, and industry

Question 14

Refer to the data provided in Table 9.1 below to answer the question(s) that follow.
Table 9.1  
-Refer to Table 9.1. In the long run, if cost conditions do not change, this firm will earn a zero economic profit if price is

Accepted Answer

A)  $10. 
B)  $15. 
C)  $20. 
D)  $28. 
A)  $10. 
B)  $15. 
C)  $20. 
D)  $28.

Question 15

In efficient markets, investment capital flows toward profit opportunities.

Accepted Answer

A) True 
 B)False

Question 16

A perfectly competitive firm, Paula's Pineapple Farm, is incurring a loss. In the short run it should continue to produce if ________, but in the long run, if there is no change in economic conditions, it should exit the industry.

Accepted Answer

A)  price is below minimum AVC 
B)  price is above minimum ATC 
C)  price is above minimum AVC 
D)  price is equal to minimum ATC 
A)  price is below minimum AVC 
B)  price is above minimum ATC 
C)  price is above minimum AVC 
D)  price is equal to minimum ATC

Question 17

The best explanation for ________ is a fixed factor causes diminishing returns to other factors.

Accepted Answer

A)  increasing returns to scale 
B)  a horizontal marginal revenue curve 
C)  a perfectly competitive firm earning economic profits in the long run 
D)  the shape of a short-run marginal cost schedule 
A)  increasing returns to scale 
B)  a horizontal marginal revenue curve 
C)  a perfectly competitive firm earning economic profits in the long run 
D)  the shape of a short-run marginal cost schedule

Question 18

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's fixed costs are

Accepted Answer

A)  $0. 
B)  $24. 
C)  $45. 
D)  indeterminate unless we know the level of output the firm is producing. 
A)  $0. 
B)  $24. 
C)  $45. 
D)  indeterminate unless we know the level of output the firm is producing.

Question 19

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 his profits, his TVC is

Accepted Answer

A)  $24. 
B)  $42. 
C)  $108. 
D)  $255. 
A)  $24. 
B)  $42. 
C)  $108. 
D)  $255.

Question 20

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. Weekly total revenue is

Accepted Answer

A)  $1,600. 
B)  $2,000. 
C)  $3,600. 
D)  $5,400. 
A)  $1,600. 
B)  $2,000. 
C)  $3,600. 
D)  $5,400.

Exam 9: Long-Run Costs and Output Decisions

As existing firms exit an increasing-cost industry

Assume the tennis ball industry, a perfectly competitive, decreasing‐cost industry, is in long-run equilibrium with a market price of $5. If the demand for tennis balls decreases, long-run equilibrium will be reestablished at a price

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

A firm suffering short-run losses will continue to operate rather than shut down when price is less than its average variable costs.

Refer to the information provided in Figure 9.5 below to answer the question that follows. Figure 9.5 -Refer to Figure 9.5. From the diagram, existing firms in this industry make ________ economic profits, and as long as this continues, ________.

In efficient markets, ________ flows toward ________ opportunities.

A firm is experiencing ________ on the downward sloping portion of a firm's long run average cost curve.

A firm will choose to shut down rather than operate as long as

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

[(P - ATC)q] represents

Refer to the information provided in Figure 9.3 below to answer the question(s) that follow. Figure 9.3 -Refer to Figure 9.3. This firm will ________ if price is $13.

Refer to the data provided in Table 9.1 below to answer the question(s) that follow. Table 9.1 -Refer to Table 9.1. If the market price is $17, then in the short run the firm will

Internal economies of scale occur at the ________ levels.

Refer to the data provided in Table 9.1 below to answer the question(s) that follow. Table 9.1 -Refer to Table 9.1. In the long run, if cost conditions do not change, this firm will earn a zero economic profit if price is

In efficient markets, investment capital flows toward profit opportunities.

A perfectly competitive firm, Paula's Pineapple Farm, is incurring a loss. In the short run it should continue to produce if ________, but in the long run, if there is no change in economic conditions, it should exit the industry.

The best explanation for ________ is a fixed factor causes diminishing returns to other factors.

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's fixed costs are

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 his profits, his TVC is

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 9.5 below to answer the question that follows. Figure 9.5 -Refer to Figure 9.5. From the diagram, existing firms in this industry make economic profits, and as long as this continues, .

In efficient markets, flows toward opportunities.