Question 1

When a firm earns a normal rate of return, it

Accepted Answer

A)  earns a profit. 
B)  breaks even. 
C)  suffers a loss. 
D)  should shut down. 
A)  earns a profit. 
B)  breaks even. 
C)  suffers a loss. 
D)  should shut down.

Question 2

Refer to Scenario 9.1 below to answer the question(s) that follow.
SCENARIO 9.1: Amy borrowed $20,000 from her parents to open a bagel shop. She pays her parents a 5% yearly return on the money they lent her. Her other yearly fixed costs equal $9,000. Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of $1.50 per dozen.
-Refer to Scenario 9.1. Amy's profit is

Accepted Answer

A)  $0. 
B)  $20,000. 
C)  $30,000. 
D)  $50,000. 
A)  $0. 
B)  $20,000. 
C)  $30,000. 
D)  $50,000.

Question 3

Related to the Economics in Practice on page 203: The price of hot dogs sold from a cart in New York's Central Park is much higher than the standard price elsewhere in New York. Which of the following, if true, would provide the best explanation for this difference?

Accepted Answer

A)  Only licensed vendors may sell hot dogs from a cart, and the price of that license is higher for sales in Central Park than it is for sales elsewhere in New York. 
B)  The standard price of hot dogs in New York is higher than the standard price of hot dogs in other cities. 
C)  In Central Park, prices for hamburgers and other foods are typically higher than they are outside of Central Park. 
D)  Almost all hot dog vendors sell essentially the same product: a standard quality-certified hot dog and two varieties of mustard. 
A)  Only licensed vendors may sell hot dogs from a cart, and the price of that license is higher for sales in Central Park than it is for sales elsewhere in New York. 
B)  The standard price of hot dogs in New York is higher than the standard price of hot dogs in other cities. 
C)  In Central Park, prices for hamburgers and other foods are typically higher than they are outside of Central Park. 
D)  Almost all hot dog vendors sell essentially the same product: a standard quality-certified hot dog and two varieties of mustard.

Question 4

Engineers for The Giffen Record Company have determined that a 35% increase in all compact disc inputs will cause a 45% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change 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 5

An industry with a ________ long-run supply curve is called a constant-cost industry.

Accepted Answer

A)  horizontal 
B)  positive sloping 
C)  negative sloping 
D)  vertical 
A)  horizontal 
B)  positive sloping 
C)  negative sloping 
D)  vertical

Question 6

Refer to the data provided in Table 9.1 below to answer the question(s) that follow.
Table 9.1 $$\begin{array} { l l l l l l l } 
\text { q } & \text { TFC } & \text { TVC } & \text { TC } & \text { MC } & \text { AVC } & \text { ATC } \
\hline 0 & \$ 50 & \$ 0 & \$ 50 & - - & - - & - - \
1 & 50 & 20 & 70 & 20 & 20 & 70 \
2 & 50 & 30 & 80 & 10 & 15 & 40 \
3 & 50 & 45 & 95 & 15 & 15 & 31.67 \
4 & 50 & 62 & 112 & 17 & 15.50 & 28 \
5 & 50 & 90 & 140 & 28 & 18 & 28 \
6 & 50 & 132 & 182 & 42 & 22 & 30.33 \
7 & 50 & 186 & 236 & 54 & 26.57 & 33.71 \
\hline
\end{array}$$
-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 7

Related to the Economics in Practice on page 196. The search engine business, which includes companies like Google and Bing, is subject to economies of scale. This means that as the use of a search engine such as Google ________, the long-run cost to provide additional searches on this engine will likely ________.

Accepted Answer

A)  increases; rise 
B)  increases; fall 
C)  decreases; fall 
D)  increases or decreases; stay the same 
A)  increases; rise 
B)  increases; fall 
C)  decreases; fall 
D)  increases or decreases; stay the same

Question 8

For economies of scale, a(n) ________ in a firm's scale of production leads to ________ average total cost.

Accepted Answer

A)  increase; lower 
B)  increase; higher 
C)  decrease; lower 
D)  decrease; no change in 
A)  increase; lower 
B)  increase; higher 
C)  decrease; lower 
D)  decrease; no change in

Question 9

Assume the market for beef is perfectly competitive. Beef producers are currently earning a zero economic profit. If consumers switch from beef to chicken, which of the following is most likely to occur?

Accepted Answer

A)  Beef producers will now incur economic losses in both the short run and the long run. 
B)  Beef producers will incur economic losses in the short run. Some producers will exit the industry until those remaining are earning a zero economic profit. 
C)  Beef producers will incur economic losses in the short run. Some producers will exit the industry until those remaining are earning an economic profit. 
D)  Beef producers will now earn economic profits in the short run, and there will be no additional adjustments in the long run. 
A)  Beef producers will now incur economic losses in both the short run and the long run. 
B)  Beef producers will incur economic losses in the short run. Some producers will exit the industry until those remaining are earning a zero economic profit. 
C)  Beef producers will incur economic losses in the short run. Some producers will exit the industry until those remaining are earning an economic profit. 
D)  Beef producers will now earn economic profits in the short run, and there will be no additional adjustments in the long run.

Question 10

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 demand for wheat is D2, then a profit-maximizing firm will produce ________ units and earn a profit of ________.

Accepted Answer

A)  13; $0 
B)  7; $0 
C)  13; $91 
D)  15; $30 
A)  13; $0 
B)  7; $0 
C)  13; $91 
D)  15; $30

Question 11

Refer to the data provided in Table 9.3 below to answer the following question(s).
Table 9.3
 $$\begin{array} { c c c c c c c } 
\text { q } & \text { TFC } & \text { TVC } & \text { TC } & \text { MC } & \text { AVC } & \text { ATC } \
\hline 0 & \$ 100 & \$ 0 & \$ 100 & - - & - - & - - \
\hline 1 & 100 & 40 & 140 & 40 & 40 & 140 \
\hline 2 & 100 & 60 & 160 & 20 & 30 & 80 \
\hline 3 & 100 & 90 & 190 & 30 & 30 & 63.33 \
\hline 4 & 100 & 124 & 224 & 34 & 31 & 56 \
\hline 5 & 100 & 180 & 280 & 56 & 36 & 56 \
\hline 6 & 100 & 264 & 364 & 84 & 44 & 60.67 \
\hline 7 & 100 & 372 & 472 & 108 & & 67.43 \
\hline
\end{array}$$
-Refer to Table 9.3. If the market price is $84, then this firm will maximize profits by producing ________ unit(s) of output and its profits will be ________.

Accepted Answer

A)  five; $140 
B)  six; $140 
C)  six; $240 
D)  seven; $116 
A)  five; $140 
B)  six; $140 
C)  six; $240 
D)  seven; $116

Question 12

The ________ 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 short-run supply curve.

Accepted Answer

A)  declining 
B)  horizontal 
C)  rising 
D)  backward bending 
A)  declining 
B)  horizontal 
C)  rising 
D)  backward bending

Question 13

An industry with a ________ long-run supply curve is called an increasing-cost industry.

Accepted Answer

A)  negative sloping 
B)  horizontal 
C)  positive sloping 
D)  backward bending 
A)  negative sloping 
B)  horizontal 
C)  positive sloping 
D)  backward bending

Question 14

A firm is experiencing ________ on the upward-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 15

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. For this firm, diseconomies of scale set in after ________ units of output.

Accepted Answer

A)  q1 
B)  q2 
C)  q3 
D)  q4 
A)  q1 
B)  q2 
C)  q3 
D)  q4

Question 16

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

Accepted Answer

A)  either operate or shut down; contract 
B)  operate; contract 
C)  shut down; expand 
D)  shut down; contract 
A)  either operate or shut down; contract 
B)  operate; contract 
C)  shut down; expand 
D)  shut down; contract

Question 17

Refer to Scenario 9.1 below to answer the question(s) that follow.
SCENARIO 9.1: Amy borrowed $20,000 from her parents to open a bagel shop. She pays her parents a 5% yearly return on the money they lent her. Her other yearly fixed costs equal $9,000. Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of $1.50 per dozen.
-Refer to Scenario 9.1. Amy's total fixed costs equal

Accepted Answer

A)  $1,000. 
B)  $9,000. 
C)  $10,000. 
D)  $21,000. 
A)  $1,000. 
B)  $9,000. 
C)  $10,000. 
D)  $21,000.

Question 18

A firm will shut down in the short run if

Accepted Answer

A)  it is suffering a loss. 
B)  fixed costs exceed revenues. 
C)  variable costs exceed revenues. 
D)  total costs exceed revenues. 
A)  it is suffering a loss. 
B)  fixed costs exceed revenues. 
C)  variable costs exceed revenues. 
D)  total costs exceed revenues.

Question 19

The short-run individual firm's supply curve is made up of the zero-profit equilibrium levels of output as the industry expands due to entry.

Accepted Answer

A) True 
 B)False

Question 20

Suppose Heidi's Ice Cream experiences economies of scale up to a certain point and diseconomies of scale beyond that point. Its long-run average cost curve is most likely to be

Accepted Answer

A)  upward sloping to the right. 
B)  downward sloping to the right. 
C)  horizontal. 
D)  U-shaped. 
A)  upward sloping to the right. 
B)  downward sloping to the right. 
C)  horizontal. 
D)  U-shaped.

When a firm earns a normal rate of return, it

Related to the Economics in Practice on page 203: The price of hot dogs sold from a cart in New York's Central Park is much higher than the standard price elsewhere in New York. Which of the following, if true, would provide the best explanation for this difference?

Engineers for The Giffen Record Company have determined that a 35% increase in all compact disc inputs will cause a 45% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause ________ as output increases.

An industry with a ________ long-run supply curve is called a constant-cost industry.

Related to the Economics in Practice on page 196. The search engine business, which includes companies like Google and Bing, is subject to economies of scale. This means that as the use of a search engine such as Google , the long-run cost to provide additional searches on this engine will likely .

For economies of scale, a(n) in a firm's scale of production leads to average total cost.

Assume the market for beef is perfectly competitive. Beef producers are currently earning a zero economic profit. If consumers switch from beef to chicken, which of the following is most likely to occur?

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 demand for wheat is D₂, then a profit-maximizing firm will produce units and earn a profit of .

The ________ 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 short-run supply curve.

An industry with a ________ long-run supply curve is called an increasing-cost industry.

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

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. For this firm, diseconomies of scale set in after ________ units of output.

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

A firm will shut down in the short run if

The short-run individual firm's supply curve is made up of the zero-profit equilibrium levels of output as the industry expands due to entry.

Suppose Heidi's Ice Cream experiences economies of scale up to a certain point and diseconomies of scale beyond that point. Its long-run average cost curve is most likely to be

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

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

Exam 9: Long-Run Costs and Output Decisions

When a firm earns a normal rate of return, it

Related to the Economics in Practice on page 203: The price of hot dogs sold from a cart in New York's Central Park is much higher than the standard price elsewhere in New York. Which of the following, if true, would provide the best explanation for this difference?

Engineers for The Giffen Record Company have determined that a 35% increase in all compact disc inputs will cause a 45% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause ________ as output increases.

An industry with a ________ long-run supply curve is called a constant-cost industry.

For economies of scale, a(n) ________ in a firm's scale of production leads to ________ average total cost.

Assume the market for beef is perfectly competitive. Beef producers are currently earning a zero economic profit. If consumers switch from beef to chicken, which of the following is most likely to occur?

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 demand for wheat is D2, then a profit-maximizing firm will produce ________ units and earn a profit of ________.

The ________ 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 short-run supply curve.

An industry with a ________ long-run supply curve is called an increasing-cost industry.

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

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. For this firm, diseconomies of scale set in after ________ units of output.

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

A firm will shut down in the short run if

The short-run individual firm's supply curve is made up of the zero-profit equilibrium levels of output as the industry expands due to entry.

Suppose Heidi's Ice Cream experiences economies of scale up to a certain point and diseconomies of scale beyond that point. Its long-run average cost curve is most likely to be

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

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

For economies of scale, a(n) in a firm's scale of production leads to average total cost.

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 demand for wheat is D₂, then a profit-maximizing firm will produce units and earn a profit of .

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