Question 1

As new firms enter 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

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 3

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 4

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

Question 5

When a decrease in the scale of production leads to higher average costs, the industry exhibits

Accepted Answer

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

Question 6

The Speedy Typesetting Company, a perfectly competitive firm, is currently producing where P = MC and is earning a normal profit. The yearly licensing fee that this firm must pay for the use of a statistical software program was just increased from $1,000 to $1,200. In the short run, this firm will most likely

Accepted Answer

A)  reduce the amount of output it produces because its cost curves have shifted up and to the left. 
B)  continue to produce the same amount of output because only its fixed costs have increased. 
C)  produce more units of output to increase revenue to cover the additional fixed costs. 
D)  shut down because it will no longer be earning a normal profit. 
A)  reduce the amount of output it produces because its cost curves have shifted up and to the left. 
B)  continue to produce the same amount of output because only its fixed costs have increased. 
C)  produce more units of output to increase revenue to cover the additional fixed costs. 
D)  shut down because it will no longer be earning a normal profit.

Question 7

Economies of scale are also referred to as increasing returns to scale.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Engineers for the Off Road Skateboard Company determine that a 12% increase in all inputs will cause a smaller percentage increase in output. Assuming that input prices remain constant, you correctly deduce that such a change in inputs will cause ________ as output increases.

Accepted Answer

A)  total costs to decrease 
B)  average costs to increase 
C)  average costs to decrease 
D)  average fixed costs to increase 
A)  total costs to decrease 
B)  average costs to increase 
C)  average costs to decrease 
D)  average fixed costs to increase

Question 10

Refer to Scenario 9.2 below to answer the question(s) that follow.
SCENARIO 9.2: Tom borrowed $40,000 from his parents to open a donut stand. He agrees to pay his parents a 5% yearly return on the money they lent him. His other yearly fixed costs equal $10,000. His variable costs equal $25,000. He sold 40,000 dozen donuts during the year at a price of $2.00 per dozen.
-Refer to Scenario 9.2. Tom's profit is

Accepted Answer

A)  $0. 
B)  $26,000. 
C)  $30,000. 
D)  $43,000. 
A)  $0. 
B)  $26,000. 
C)  $30,000. 
D)  $43,000.

Question 11

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 fixed costs equal

Accepted Answer

A)  $2,000. 
B)  $18,000. 
C)  $20,000. 
D)  $22,000. 
A)  $2,000. 
B)  $18,000. 
C)  $20,000. 
D)  $22,000.

Question 12

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 13

Refer to Scenario 9.9 below to answer the question(s) that follow.
SCENARIO 9.9: Sponsors invest $250,000 in a new greeting card business on the promise that they will earn a return of 10% per year on their investment. The business sells 52,000 greeting cards per year. The fixed costs for the business include the return to investors and $79,000 in other fixed costs. Variable costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($3,000 per week). The business is open 52 weeks per year.
-Refer to Scenario 9.9. The annual total costs for the business sum to

Accepted Answer

A)  $79,000. 
B)  $104,000. 
C)  $208,000. 
D)  $312,000. 
A)  $79,000. 
B)  $104,000. 
C)  $208,000. 
D)  $312,000.

Question 14

If price is above average total cost at the output where marginal revenue equals marginal cost, a firm will earn positive economic profits.

Accepted Answer

A) True 
 B)False

Question 15

Assume a perfectly competitive industry is in long-run equilibrium at a price of $30. 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 $30. 
B)  of $30. 
C)  less than $30. 
D)  either greater than or less than $30 depending on the magnitude of the decrease in demand. 
A)  greater than $30. 
B)  of $30. 
C)  less than $30. 
D)  either greater than or less than $30 depending on the magnitude of the decrease in demand.

Question 16

A firm must earn an economic profit in order to receive a normal rate of return.

Accepted Answer

A) True 
 B)False

Question 17

When ________ scale of production leads to ________ average costs, an industry exhibits decreasing returns to scale.

Accepted Answer

A)  decreased; higher 
B)  increased; unchanging 
C)  increased; higher 
D)  increased; lower 
A)  decreased; higher 
B)  increased; unchanging 
C)  increased; higher 
D)  increased; lower

Question 18

If a perfectly competitive firm shuts down in the short run and exits the industry in the long run, the firm's short run condition is

Accepted Answer

A) TR > TC. B) TR > TVC and TR < TC. C) TR < TVC. D) TR < TFC. A) TR > TC. B) TR > TVC and TR < TC. C) TR < TVC. D) TR < TFC.

Question 19

If a firm shuts down in the short run, then

Accepted Answer

A)  its economic profits are zero. 
B)  its losses are equal to its fixed costs. 
C)  its fixed costs are greater than its variable costs. 
D)  it must be the case that its revenues from operating were less than its total costs. 
A)  its economic profits are zero. 
B)  its losses are equal to its fixed costs. 
C)  its fixed costs are greater than its variable costs. 
D)  it must be the case that its revenues from operating were less than its total costs.

Question 20

The ________ for a perfectly competitive industry is the horizontal sum of the individual firmsʹ marginal cost curves above AVC.

Accepted Answer

A)  short-run industry supply curve 
B)  long-run industry supply curve 
C)  short-run industry marginal revenue curve 
D)  long-run industry marginal revenue curve 
A)  short-run industry supply curve 
B)  long-run industry supply curve 
C)  short-run industry marginal revenue curve 
D)  long-run industry marginal revenue curve

As new firms enter an increasing-cost industry

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

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

When a decrease in the scale of production leads to higher average costs, the industry exhibits

Economies of scale are also referred to as increasing returns to scale.

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

Engineers for the Off Road Skateboard Company determine that a 12% increase in all inputs will cause a smaller percentage increase in output. Assuming that input prices remain constant, you correctly deduce that such a change in inputs will cause ________ as output increases.

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

If price is above average total cost at the output where marginal revenue equals marginal cost, a firm will earn positive economic profits.

Assume a perfectly competitive industry is in long-run equilibrium at a price of $30. If this industry is an increasing-cost industry and the demand for the product increases, long-run equilibrium will be reestablished at a price

A firm must earn an economic profit in order to receive a normal rate of return.

When scale of production leads to average costs, an industry exhibits decreasing returns to scale.

If a perfectly competitive firm shuts down in the short run and exits the industry in the long run, the firm's short run condition is

If a firm shuts down in the short run, then

The ________ for a perfectly competitive industry is the horizontal sum of the individual firmsʹ marginal cost curves above AVC.

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

As new firms enter an increasing-cost industry

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

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

When a decrease in the scale of production leads to higher average costs, the industry exhibits

Economies of scale are also referred to as increasing returns to scale.

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

Engineers for the Off Road Skateboard Company determine that a 12% increase in all inputs will cause a smaller percentage increase in output. Assuming that input prices remain constant, you correctly deduce that such a change in inputs will cause ________ as output increases.

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

If price is above average total cost at the output where marginal revenue equals marginal cost, a firm will earn positive economic profits.

Assume a perfectly competitive industry is in long-run equilibrium at a price of $30. If this industry is an increasing-cost industry and the demand for the product increases, long-run equilibrium will be reestablished at a price

A firm must earn an economic profit in order to receive a normal rate of return.

When ________ scale of production leads to ________ average costs, an industry exhibits decreasing returns to scale.

If a perfectly competitive firm shuts down in the short run and exits the industry in the long run, the firm's short run condition is

If a firm shuts down in the short run, then

The ________ for a perfectly competitive industry is the horizontal sum of the individual firmsʹ marginal cost curves above AVC.

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

When scale of production leads to average costs, an industry exhibits decreasing returns to scale.