Question 1

In the pumpkin-growing firm example in the text, the firm is a price-taker because

Accepted Answer

A) the firm does not have the ability to charge whatever price it wants to charge. 
B) the firm is not a profit-maximizing firm. 
C) price setting is too complicated for an individual firm. 
D) the market for pumpkins is a competitive market. 
E) it faces no demand. 
A) the firm does not have the ability to charge whatever price it wants to charge. 
B) the firm is not a profit-maximizing firm. 
C) price setting is too complicated for an individual firm. 
D) the market for pumpkins is a competitive market. 
E) it faces no demand. D

Question 2

Diminishing returns to labor is the term used to describe what happens when output falls as more labor is employed in a firm.

Accepted Answer

A) True 
 B)False  False

Question 3

Producer surplus is the

Accepted Answer

A) difference between the quantity supplied and the quantity demanded when price is above equilibrium. 
B) quantity of a good a producer cannot sell at the price he or she is asking. 
C) difference between the quantity produced in the market at a given price and the amount produced by a single firm at that price. 
D) difference between the market price of an item and what people are willing to pay. 
E) difference between the market price and the minimum amount of money a producer will accept for his or her product. 
A) difference between the quantity supplied and the quantity demanded when price is above equilibrium. 
B) quantity of a good a producer cannot sell at the price he or she is asking. 
C) difference between the quantity produced in the market at a given price and the amount produced by a single firm at that price. 
D) difference between the market price of an item and what people are willing to pay. 
E) difference between the market price and the minimum amount of money a producer will accept for his or her product. E

Question 4

The supply curve obtained from the relationship between profits and production is different from the supply curve obtained from the relationship between price and marginal cost.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 6-7  
-Refer to Exhibit 6-7. Which of the following statements is false?

Accepted Answer

A) If market price is $20 and output is 6 units, producer surplus is -$7. 
B) If market price is $10, producer surplus is the same whether output is zero or 1 unit. 
C) If market price is $20 and 5 units are produced, producer surplus will increase if production is decreased one unit. 
D) If market price is $16, producer surplus is the same when 3 units are produced as when 2 units are produced. 
E) If market price is $17 and 4 units are produced, producer surplus will increase if production is decreased by 1 unit. 
A) If market price is $20 and output is 6 units, producer surplus is -$7. 
B) If market price is $10, producer surplus is the same whether output is zero or 1 unit. 
C) If market price is $20 and 5 units are produced, producer surplus will increase if production is decreased one unit. 
D) If market price is $16, producer surplus is the same when 3 units are produced as when 2 units are produced. 
E) If market price is $17 and 4 units are produced, producer surplus will increase if production is decreased by 1 unit.

Question 6

For a single competitive firm, marginal revenue is equivalent to

Accepted Answer

A) marginal product. 
B) marginal cost. 
C) total revenue. 
D) output price. 
E) the sum of all input prices. 
A) marginal product. 
B) marginal cost. 
C) total revenue. 
D) output price. 
E) the sum of all input prices.

Question 7

Which of the following is an example of a firm?

Accepted Answer

A) A local government agency 
B) A family with four children 
C) A grocery store 
D) A public school 
E) The U.S.Department of Commerce 
A) A local government agency 
B) A family with four children 
C) A grocery store 
D) A public school 
E) The U.S.Department of Commerce

Question 8

Why does it not make sense to sum individual firms' supply prices at every quantity rather than summing individual firms' supply quantities at every price?

Accepted Answer

The individual supply curve tells how mu

Question 9

The added revenue that comes from producing and selling another unit of a good is called

Accepted Answer

A) marginal cost. 
B) price. 
C) marginal product. 
D) average revenue. 
E) marginal revenue. 
A) marginal cost. 
B) price. 
C) marginal product. 
D) average revenue. 
E) marginal revenue.

Question 10

A variable factor is the type of input that varies with a firm's output level.

Accepted Answer

A) True 
 B)False

Question 11

If a competitive firm continues to produce when marginal revenue is less than marginal cost, then each additional unit of output

Accepted Answer

A) maximizes profits or minimizes losses. 
B) minimizes losses. 
C) reduces total profit. 
D) increases total profit. 
E) increases both total costs and total revenue. 
A) maximizes profits or minimizes losses. 
B) minimizes losses. 
C) reduces total profit. 
D) increases total profit. 
E) increases both total costs and total revenue.

Question 12

Exhibit 6-4  
-Refer to Exhibit 6-4. Assume that fixed costs equal $30. If the price is $20, the profit that results at the profit-maximizing output level is

Accepted Answer

A) $50. 
B) $38. 
C) $20. 
D) -$4. 
E) $80. 
A) $50. 
B) $38. 
C) $20. 
D) -$4. 
E) $80.

Question 13

Exhibit 6-7  
-Refer to Exhibit 6-7. If market price is $18, producer surplus for the profit-maximizing firm is

Accepted Answer

A) $14. 
B) $15. 
C) $13. 
D) $8. 
E) $11. 
A) $14. 
B) $15. 
C) $13. 
D) $8. 
E) $11.

Question 14

Marginal cost is

Accepted Answer

A) the change in total cost that results from hiring one more unit of labor. 
B) total cost divided by total output. 
C) the change in total variable cost that results from hiring one more unit of capital. 
D) the change in total cost that results from hiring one more unit of capital. 
E) the change in total cost that results from increasing output by one unit. 
A) the change in total cost that results from hiring one more unit of labor. 
B) total cost divided by total output. 
C) the change in total variable cost that results from hiring one more unit of capital. 
D) the change in total cost that results from hiring one more unit of capital. 
E) the change in total cost that results from increasing output by one unit.

Question 15

A production function is a straight line because of diminishing returns to labor.

Accepted Answer

A) True 
 B)False

Question 16

The approach based on the relationship between price and marginal cost brings about the same supply curve as what is implied by the approach based on profit maximization.

Accepted Answer

A) True 
 B)False

Question 17

Separation of ownership from control is most commonly found in a

Accepted Answer

A) sole proprietorship. 
B) partnership. 
C) corporation. 
D) nonprofit firm. 
E) consortium. 
A) sole proprietorship. 
B) partnership. 
C) corporation. 
D) nonprofit firm. 
E) consortium.

Question 18

Because marginal product decreases as input is increased,

Accepted Answer

A) nothing is implied about how much input is required to produce one more unit of output. 
B) it takes decreasing amounts of input to produce one more unit of output. 
C) it takes increasing amounts of input to produce one more unit of output. 
D) the amount of input it takes to produce one more unit of output does not change. 
E) it takes zero input to produce one more unit of output. 
A) nothing is implied about how much input is required to produce one more unit of output. 
B) it takes decreasing amounts of input to produce one more unit of output. 
C) it takes increasing amounts of input to produce one more unit of output. 
D) the amount of input it takes to produce one more unit of output does not change. 
E) it takes zero input to produce one more unit of output.

Question 19

Name one industry in which firms are price-takers. Name one industry in which firms are not price-takers. Suppose you set up a business where you sell lemonade on a street. Would you be a price-taker or a price-maker?

Accepted Answer

One industry in which firms are price-ta

Question 20

The slope of the production function turns from positive to negative when the marginal product of labor turns from positive to negative.

Accepted Answer

A) True 
 B)False

Exam 6: The Supply Curve and the Behavior of Firms

In the pumpkin-growing firm example in the text, the firm is a price-taker because

Diminishing returns to labor is the term used to describe what happens when output falls as more labor is employed in a firm.

Producer surplus is the

The supply curve obtained from the relationship between profits and production is different from the supply curve obtained from the relationship between price and marginal cost.

Exhibit 6-7 -Refer to Exhibit 6-7. Which of the following statements is false?

For a single competitive firm, marginal revenue is equivalent to

Which of the following is an example of a firm?

Why does it not make sense to sum individual firms' supply prices at every quantity rather than summing individual firms' supply quantities at every price?

The added revenue that comes from producing and selling another unit of a good is called

A variable factor is the type of input that varies with a firm's output level.

If a competitive firm continues to produce when marginal revenue is less than marginal cost, then each additional unit of output

Exhibit 6-4 -Refer to Exhibit 6-4. Assume that fixed costs equal $30. If the price is $20, the profit that results at the profit-maximizing output level is

Exhibit 6-7 -Refer to Exhibit 6-7. If market price is $18, producer surplus for the profit-maximizing firm is

Marginal cost is

A production function is a straight line because of diminishing returns to labor.

The approach based on the relationship between price and marginal cost brings about the same supply curve as what is implied by the approach based on profit maximization.

Separation of ownership from control is most commonly found in a

Because marginal product decreases as input is increased,

Name one industry in which firms are price-takers. Name one industry in which firms are not price-takers. Suppose you set up a business where you sell lemonade on a street. Would you be a price-taker or a price-maker?

The slope of the production function turns from positive to negative when the marginal product of labor turns from positive to negative.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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