Question 1

Assume the wool industry is perfectly competitive. Why is it difficult for a wool producer to make excess profits in the long run?

Accepted Answer

A)  the fact that wool producers are ʺprice takersʺ 
B)  the assumption that wool producers in the industry do not ʺdifferentiateʺ their products 
C)  the fact that the demand curve facing each wool producer is perfectly elastic 
D)  There is free entry into the wool industry. 
A)  the fact that wool producers are ʺprice takersʺ 
B)  the assumption that wool producers in the industry do not ʺdifferentiateʺ their products 
C)  the fact that the demand curve facing each wool producer is perfectly elastic 
D)  There is free entry into the wool industry.

Question 2

Refer to the short-run information provided in Figure 8.5 below to answer the question(s) that follow.   Figure 8.5
-Refer to Figure 8.5. If four drones are produced, total variable costs are

Accepted Answer

A)  $17.50. 
B)  $20. 
C)  $70. 
D)  $120. 
A)  $17.50. 
B)  $20. 
C)  $70. 
D)  $120.

Question 3

Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total variable cost is $300. What is the total cost of producing 100 widgets?

Accepted Answer

A)  $300 
B)  $305 
C)  $500 
D)  $800 
A)  $300 
B)  $305 
C)  $500 
D)  $800

Question 4

If, ceteris paribus, demand in a perfectly competitive industry increases, the market price for the product will also increase.

Accepted Answer

A) True 
 B)False

Question 5

In the short run where total variable cost is ________ at a(n) ________ rate, marginal cost is positive and decreasing.

Accepted Answer

A)  increasing; increasing 
B)  increasing; decreasing 
C)  decreasing; increasing 
D)  decreasing; decreasing 
A)  increasing; increasing 
B)  increasing; decreasing 
C)  decreasing; increasing 
D)  decreasing; decreasing

Question 6

Consider an output beyond the minimum point of a firm's short run average total cost curve. At this level of output the firm can use its ________ input at a lower average cost but only by using its ________ input at a higher average cost.

Accepted Answer

A)  fixed capital; variable labor 
B)  variable labor; fixed capital 
C)  variable capital; fixed labor 
D)  fixed labor; variable capital 
A)  fixed capital; variable labor 
B)  variable labor; fixed capital 
C)  variable capital; fixed labor 
D)  fixed labor; variable capital

Question 7

A perfectly elastic demand curve implies that, ceteris paribus

Accepted Answer

A)  a firm can sell more by lowering its price. 
B)  if a firm raises its price above the market price, quantity demanded will equal zero. 
C)  the price a firm charges is irrelevant, as it will sell the same amount regardless of the price charged. 
D)  a firm can raise its price and not lose all its customers. 
A)  a firm can sell more by lowering its price. 
B)  if a firm raises its price above the market price, quantity demanded will equal zero. 
C)  the price a firm charges is irrelevant, as it will sell the same amount regardless of the price charged. 
D)  a firm can raise its price and not lose all its customers.

Question 8

The marginal revenue curve for a perfectly competitive firm is

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  horizontal. 
D)  vertical. 
A)  downward sloping. 
B)  upward sloping. 
C)  horizontal. 
D)  vertical.

Question 9

Refer to the information provided in Table 8.5 below to answer the question(s) that follow.
Table 8.5
  
-Refer to Table 8.5. If Phoebe produces four swords, her average fixed costs are

Accepted Answer

A)  $2. 
B)  $10. 
C)  $12.50. 
D)  $50. 
A)  $2. 
B)  $10. 
C)  $12.50. 
D)  $50.

Question 10

Assume Robbie's Robots operates in a perfectly competitive market producing 3,000 robots per day. At this output level, the selling price is $800 per robot and the marginal cost is $825 per robot. To maximize profits, Robbie's Robots should

Accepted Answer

A)  make no adjustments as they are already maximizing their profits. 
B)  increase their output. 
C)  decrease their output. 
D)  stop producing since it is earning a loss. 
A)  make no adjustments as they are already maximizing their profits. 
B)  increase their output. 
C)  decrease their output. 
D)  stop producing since it is earning a loss.

Question 11

Perfectly competitive industries are characterized by a homogeneous product.

Accepted Answer

A) True 
 B)False

Question 12

Related to the Economics in Practice on page 172: When there are only a few empty cabins on a large cruise ship, the marginal cost of adding extra passengers to occupy those cabins

Accepted Answer

A)  is probably very low. 
B)  will be negative. 
C)  is generally quite high. 
D)  will primarily depend on the number of customers waiting to travel. 
A)  is probably very low. 
B)  will be negative. 
C)  is generally quite high. 
D)  will primarily depend on the number of customers waiting to travel.

Question 13

________ is (are) most likely a variable cost for a firm.

Accepted Answer

A)  The monthly lease payment on a delivery truck that is leased for three years 
B)  The plumbing company's annual licensing fee 
C)  The quarterly payments for a two-year maintenance contract for copy machines 
D)  Monthly health insurance expenses for employees 
A)  The monthly lease payment on a delivery truck that is leased for three years 
B)  The plumbing company's annual licensing fee 
C)  The quarterly payments for a two-year maintenance contract for copy machines 
D)  Monthly health insurance expenses for employees

Question 14

If we know average total cost and the amount of output, then we can always calculate total cost by

Accepted Answer

A)  adding average total cost and the amount of output. 
B)  subtracting the amount of output from average total cost. 
C)  multiplying average total cost by the amount of output. 
D)  dividing average total cost by the amount of output. 
A)  adding average total cost and the amount of output. 
B)  subtracting the amount of output from average total cost. 
C)  multiplying average total cost by the amount of output. 
D)  dividing average total cost by the amount of output.

Question 15

Refer to the information provided in Figure 8.4 below to answer the question(s) that follow.   Figure 8.4
-Refer to Figure 8.4. If six microwave ovens are produced, Micro Oven's total variable costs are

Accepted Answer

A)  $100. 
B)  $150. 
C)  $300. 
D)  $600. 
A)  $100. 
B)  $150. 
C)  $300. 
D)  $600.

Question 16

Total cost is calculated as

Accepted Answer

A)  the sum of total fixed cost and total variable cost. 
B)  the product of average total cost and price. 
C)  the sum of all the firm's explicit costs. 
D)  the sum of average fixed cost and average variable cost. 
A)  the sum of total fixed cost and total variable cost. 
B)  the product of average total cost and price. 
C)  the sum of all the firm's explicit costs. 
D)  the sum of average fixed cost and average variable cost.

Question 17

Refer to the information provided in Table 8.1 below to answer the question(s) that follow.
Table 8.1  
-Refer to Table 8.1. Assume the price of labor (L) is $5 per unit, the price of capital (K) is $10 per unit, and that firms attempt to minimize costs. The marginal cost of producing the third unit of output is

Accepted Answer

A)  $30. 
B)  $40. 
C)  $50. 
D)  indeterminate from this information. 
A)  $30. 
B)  $40. 
C)  $50. 
D)  indeterminate from this information.

Question 18

If there is a decrease in industry supply while the industry demand curve remains the same, then an individual firm in a perfectly competitive industry currently earning profits will see its profits

Accepted Answer

A)  increase. 
B)  not change. 
C)  decrease. 
D)  impossible to determine. 
A)  increase. 
B)  not change. 
C)  decrease. 
D)  impossible to determine.

Question 19

Refer to the information provided in Table 8.7 below to answer the following question(s).
Table 8.7  
-Refer to Table 8.7. Assume that fruit baskets are sold in a perfectly competitive market. The market price of a fruit basket is $22. To maximize profits, Exotic Fruit should sell ________ fruit baskets and their profit is ________.

Accepted Answer

A)  three; $5 
B)  four; $7 
C)  five; $14 
D)  six; $14 
A)  three; $5 
B)  four; $7 
C)  five; $14 
D)  six; $14

Question 20

The shut-down decision is a short-run decision.

Accepted Answer

A) True 
 B)False

Exam 8: Short-Run Costs and Output Decisions

Assume the wool industry is perfectly competitive. Why is it difficult for a wool producer to make excess profits in the long run?

Refer to the short-run information provided in Figure 8.5 below to answer the question(s) that follow. Figure 8.5 -Refer to Figure 8.5. If four drones are produced, total variable costs are

Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total variable cost is $300. What is the total cost of producing 100 widgets?

If, ceteris paribus, demand in a perfectly competitive industry increases, the market price for the product will also increase.

In the short run where total variable cost is ________ at a(n) ________ rate, marginal cost is positive and decreasing.

Consider an output beyond the minimum point of a firm's short run average total cost curve. At this level of output the firm can use its ________ input at a lower average cost but only by using its ________ input at a higher average cost.

A perfectly elastic demand curve implies that, ceteris paribus

The marginal revenue curve for a perfectly competitive firm is

Refer to the information provided in Table 8.5 below to answer the question(s) that follow. Table 8.5 -Refer to Table 8.5. If Phoebe produces four swords, her average fixed costs are

Assume Robbie's Robots operates in a perfectly competitive market producing 3,000 robots per day. At this output level, the selling price is $800 per robot and the marginal cost is $825 per robot. To maximize profits, Robbie's Robots should

Perfectly competitive industries are characterized by a homogeneous product.

Related to the Economics in Practice on page 172: When there are only a few empty cabins on a large cruise ship, the marginal cost of adding extra passengers to occupy those cabins

________ is (are) most likely a variable cost for a firm.

If we know average total cost and the amount of output, then we can always calculate total cost by

Refer to the information provided in Figure 8.4 below to answer the question(s) that follow. Figure 8.4 -Refer to Figure 8.4. If six microwave ovens are produced, Micro Oven's total variable costs are

Total cost is calculated as

If there is a decrease in industry supply while the industry demand curve remains the same, then an individual firm in a perfectly competitive industry currently earning profits will see its profits

The shut-down decision is a short-run decision.

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

Long-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

In the short run where total variable cost is at a(n) rate, marginal cost is positive and decreasing.

Consider an output beyond the minimum point of a firm's short run average total cost curve. At this level of output the firm can use its input at a lower average cost but only by using its input at a higher average cost.