Question 1

A profit-maximizing strategy becomes a loss minimization strategy when a firm in a perfectly competitive industry is producing where

Accepted Answer

A)  AVC  ATC. 
C)  P = ATC. 
D)  MR = MC < P. 
A)  AVC  ATC. 
C)  P = ATC. 
D)  MR = MC < P.

Question 2

The Taste Freeze Ice Cream Company is a perfectly competitive firm producing where MR = MC. The current market price of an ice cream sandwich is $5.00. Taste Freeze sells 200 ice cream sandwiches. Its AVC is $8.00 and its AFC is $3.00. What should Taste Freeze do?

Accepted Answer

A)  Continue to produce because price exceeds AFC. 
B)  Shut down and produce zero sandwiches because price is less than AVC. 
C)  Decrease production so that AVC will decrease. 
D)  Increase production so that AFC will decrease. 
A)  Continue to produce because price exceeds AFC. 
B)  Shut down and produce zero sandwiches because price is less than AVC. 
C)  Decrease production so that AVC will decrease. 
D)  Increase production so that AFC will decrease.

Question 3

Assume a perfectly competitive industry is in long-run equilibrium at a price of $150. If this industry is an increasing-cost industry and the demand for the product increases, long-run equilibrium will be reestablished at a price

Accepted Answer

A)  greater than $150. 
B)  of $150. 
C)  less than $150. 
D)  either greater than or less than $150 depending on the magnitude of the decrease in demand. 
A)  greater than $150. 
B)  of $150. 
C)  less than $150. 
D)  either greater than or less than $150 depending on the magnitude of the decrease in demand.

Question 4

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's short-run supply curve is the firmʹs

Accepted Answer

A)  AVC curve to the right of Point B. 
B)  marginal cost curve above Point A. 
C)  marginal cost curve above Point B. 
D)  marginal cost curve above Point D. 
A)  AVC curve to the right of Point B. 
B)  marginal cost curve above Point A. 
C)  marginal cost curve above Point B. 
D)  marginal cost curve above Point D.

Question 5

The Reliable Auto Repair Shop is earning a total revenue of $7,000. Its total fixed costs are $700, and its total variable costs are $2,500. The Reliable Auto Repair Shopʹs profit is

Accepted Answer

A)  -$1,800. 
B)  $3,800. 
C)  $4,500. 
D)  $6,300. 
A)  -$1,800. 
B)  $3,800. 
C)  $4,500. 
D)  $6,300.

Question 6

In efficient markets, profit opportunities are quickly eliminated as they develop.

Accepted Answer

A) True 
 B)False

Question 7

Suppose Fergie's Florist experiences ________ up to a certain point and ________ beyond that point. Its long-run average cost curve is most likely to be U-shaped.

Accepted Answer

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

Question 8

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 long 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 9

Which of the following is an example of diseconomies of scale?

Accepted Answer

A)  As the computer industry has expanded, demand for professionally trained computer programmers has also increased, which has caused the salaries of computer programmers to increase. 
B)  As a firm hires additional workers, each worker adds less to total output than the previous worker. 
C)  A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases, the premium per person decreases substantially. 
D)  As the demand for calculators decreased, the price of calculators actually rose. 
A)  As the computer industry has expanded, demand for professionally trained computer programmers has also increased, which has caused the salaries of computer programmers to increase. 
B)  As a firm hires additional workers, each worker adds less to total output than the previous worker. 
C)  A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases, the premium per person decreases substantially. 
D)  As the demand for calculators decreased, the price of calculators actually rose.

Question 10

The smallest size plant size at which the long-run average cost curve is at its minimum is called the

Accepted Answer

A)  envelope. 
B)  profit-maximizing scale of production. 
C)  minimum efficient scale. 
D)  shut down point. 
A)  envelope. 
B)  profit-maximizing scale of production. 
C)  minimum efficient scale. 
D)  shut down point.

Question 11

The rising part of a perfectly competitive firm's marginal cost curve that is equal to or above points on its average variable cost curve is the firm's

Accepted Answer

A)  normal profit curve. 
B)  economic profit curve. 
C)  short run supply curve. 
D)  long run supply curve. 
A)  normal profit curve. 
B)  economic profit curve. 
C)  short run supply curve. 
D)  long run supply curve.

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. The lowest output this firm would produce before shutting down is ________ unit(s).

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 13

The following is the set of conditions is necessary for ________ for a perfectly competitive firm: P = SRMC = SRAC = LRAC.

Accepted Answer

A)  short-run shut down 
B)  long-run profit 
C)  long-run production with economic losses 
D)  long-run equilibrium 
A)  short-run shut down 
B)  long-run profit 
C)  long-run production with economic losses 
D)  long-run equilibrium

Question 14

Refer to Scenario 9.6 below to answer the question(s) that follow.
SCENARIO 9.6: Celeste borrowed $40,000 from her brother to open a car wash. She pays her brother a 5% yearly return on the money he lent her. Her other yearly fixed costs equal $18,000. Her variable costs equal $40,000. In her first year, Amy sold 40,000 car washes at a price of $2.50 per car wash.
-Refer to Scenario 9.6. Celeste's total costs equal

Accepted Answer

A)  $20,000. 
B)  $40,000. 
C)  $60,000. 
D)  $100,000. 
A)  $20,000. 
B)  $40,000. 
C)  $60,000. 
D)  $100,000.

Question 15

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 profits, his total costs will be

Accepted Answer

A)  $11. 
B)  $66. 
C)  $90. 
D)  $132. 
A)  $11. 
B)  $66. 
C)  $90. 
D)  $132.

Question 16

If the price of an input decreases, each individual firm's ________ shifts downward and the ________ shifts to the right.

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 17

The Razor-Thin Disposable Razor Company is a perfectly competitive firm producing where MR = MC. The current market price of a disposable razor is $3.00. The firm sells 1,800 disposable razors. Its AVC is $2.00 and its AFC is $1.50. What should Razor-Thin do?

Accepted Answer

A)  Continue to produce because price exceeds AVC. 
B)  Shut down and produce zero razors because price is less than ATC. 
C)  Decrease production so that AVC will decrease. 
D)  Increase production so that AFC will decrease. 
A)  Continue to produce because price exceeds AVC. 
B)  Shut down and produce zero razors because price is less than ATC. 
C)  Decrease production so that AVC will decrease. 
D)  Increase production so that AFC will decrease.

Question 18

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. What must the average price per sandwich be for the deli to earn a normal return?

Accepted Answer

A)  $1 
B)  $3 
C)  $4 
D)  $5.92 
A)  $1 
B)  $3 
C)  $4 
D)  $5.92

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. This farmer will continue to produce at any price above ________, but will not produce below that price.

Accepted Answer

A)  $15 
B)  $11 
C)  $9 
D)  $7 
A)  $15 
B)  $11 
C)  $9 
D)  $7

Question 20

An industry with a positive-sloping long-run supply curve is called a(n) ________ industry.

Accepted Answer

A)  constant-cost 
B)  decreasing-cost 
C)  increasing-cost 
D)  decreasing-profit 
A)  constant-cost 
B)  decreasing-cost 
C)  increasing-cost 
D)  decreasing-profit

Exam 9: Long-Run Costs and Output Decisions

A profit-maximizing strategy becomes a loss minimization strategy when a firm in a perfectly competitive industry is producing where

The Taste Freeze Ice Cream Company is a perfectly competitive firm producing where MR = MC. The current market price of an ice cream sandwich is $5.00. Taste Freeze sells 200 ice cream sandwiches. Its AVC is $8.00 and its AFC is $3.00. What should Taste Freeze do?

Assume a perfectly competitive industry is in long-run equilibrium at a price of $150. If this industry is an increasing-cost industry and the demand for the product increases, long-run equilibrium will be reestablished at a price

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's short-run supply curve is the firmʹs

The Reliable Auto Repair Shop is earning a total revenue of $7,000. Its total fixed costs are $700, and its total variable costs are $2,500. The Reliable Auto Repair Shopʹs profit is

In efficient markets, profit opportunities are quickly eliminated as they develop.

Suppose Fergie's Florist experiences ________ up to a certain point and ________ beyond that point. Its long-run average cost curve is most likely to be U-shaped.

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 long run the firm will

Which of the following is an example of diseconomies of scale?

The smallest size plant size at which the long-run average cost curve is at its minimum is called the

The rising part of a perfectly competitive firm's marginal cost curve that is equal to or above points on its average variable cost curve is the firm's

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. The lowest output this firm would produce before shutting down is ________ unit(s).

The following is the set of conditions is necessary for ________ for a perfectly competitive firm: P = SRMC = SRAC = LRAC.

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 profits, his total costs will be

If the price of an input decreases, each individual firm's ________ shifts downward and the ________ shifts to the right.

The Razor-Thin Disposable Razor Company is a perfectly competitive firm producing where MR = MC. The current market price of a disposable razor is $3.00. The firm sells 1,800 disposable razors. Its AVC is $2.00 and its AFC is $1.50. What should Razor-Thin do?

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 will continue to produce at any price above ________, but will not produce below that price.

An industry with a positive-sloping long-run supply curve is called a(n) ________ industry.

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

Suppose Fergie's Florist experiences up to a certain point and beyond that point. Its long-run average cost curve is most likely to be U-shaped.

If the price of an input decreases, each individual firm's shifts downward and the shifts to the right.