Question 1

A firm earns a profit if

Accepted Answer

A)  total revenue exceeds the total cost of production. 
B)  total revenue equals total fixed costs. 
C)  price is less than the total cost of production. 
D)  price equals marginal cost. 
A)  total revenue exceeds the total cost of production. 
B)  total revenue equals total fixed costs. 
C)  price is less than the total cost of production. 
D)  price equals marginal cost. A

Question 2

Every point on a U‐shaped long-run average cost curve represents

Accepted Answer

A)  the minimum cost at which the associated output level can be produced when the scale of plant can be changed. 
B)  the minimum point of the associated short-run average cost curve. 
C)  the minimum cost at which the associated output level can be produced when the scale of plant cannot be changed. 
D)  both A and B 
A)  the minimum cost at which the associated output level can be produced when the scale of plant can be changed. 
B)  the minimum point of the associated short-run average cost curve. 
C)  the minimum cost at which the associated output level can be produced when the scale of plant cannot be changed. 
D)  both A and B A

Question 3

If price falls below the minimum point on the AVC curve, in the short run the firm should ________, and in the long run the firm should ________.

Accepted Answer

A)  produce where MC = MR; exit the industry 
B)  shut down; exit the industry 
C)  produce where MC = MR; expand 
D)  shut down; expand 
A)  produce where MC = MR; exit the industry 
B)  shut down; exit the industry 
C)  produce where MC = MR; expand 
D)  shut down; expand B

Question 4

If a firm earns short-run losses, it exits in the long run.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following refers to a short run phenomenon?

Accepted Answer

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

Question 6

When an increase of a firm's scale of production leads to higher average costs per unit produced, there is an increasing return to scale.

Accepted Answer

A) True 
 B)False

Question 7

Refer to Scenario 9.2 below to answer the questions 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 8

If the price of an input increases, each individual firm's marginal cost curve shifts ________ and the industry supply curve ________.

Accepted Answer

A)  downward; shifts to the left 
B)  downward; shifts to the right 
C)  up; does not change 
D)  up; shifts to the left 
A)  downward; shifts to the left 
B)  downward; shifts to the right 
C)  up; does not change 
D)  up; shifts to the left

Question 9

Assume the peanut industry, a perfectly competitive industry, is in long-run equilibrium with a market price of $5. If demand for peanuts increases and this industry is a decreasing-cost industry, long-run equilibrium will be reestablished at a price

Accepted Answer

A)  greater than $5. 
B)  less than $5. 
C)  equal to $5. 
D)  either greater than or less than $5, depending on the number of firms that enter the industry. 
A)  greater than $5. 
B)  less than $5. 
C)  equal to $5. 
D)  either greater than or less than $5, depending on the number of firms that enter the industry.

Question 10

Refer to Scenario 9.4 below to answer the questions 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. The annual fixed costs of the deli are ________.

Accepted Answer

A)  $10,000 
B)  $42,000 
C)  $52,000 
D)  $156,000 
A)  $10,000 
B)  $42,000 
C)  $52,000 
D)  $156,000

Question 11

Refer to Scenario 9.2 below to answer the questions 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 total costs equal

Accepted Answer

A)  $37,000. 
B)  $40,000. 
C)  $50,000. 
D)  $59,000. 
A)  $37,000. 
B)  $40,000. 
C)  $50,000. 
D)  $59,000.

Question 12

If a firm's economic profit is $0, then it must be true that

Accepted Answer

A)  TR equals TC. 
B)  TR equals TVC. 
C)  TR equals TFC. 
D)  TFC is zero. 
A)  TR equals TC. 
B)  TR equals TVC. 
C)  TR equals TFC. 
D)  TFC is zero.

Question 13

Refer to the data provided in Table 9.2 below to answer the questions that follow.
Table 9.2 $$\begin{array} { l l l l l l l } 
\text { q } & \text { TFC } & \text { TVC } & \text { TC } & \text { MC } & \text { AVC } & \text { ATC } \
\hline 0 & \$ 50 & \$ 0 & \$ 50 & - - & - - & - - \
1 & 50 & 20 & 70 & 20 & 20 & 70 \
2 & 50 & 30 & 80 & 10 & 15 & 40 \
3 & 50 & 45 & 95 & 15 & 15 & 31.67 \
4 & 50 & 62 & 112 & 17 & 15.50 & 28 \
5 & 50 & 90 & 140 & 28 & 18 & 28 \
6 & 50 & 132 & 182 & 42 & 22 & 30.33 \
7 & 50 & 186 & 236 & 54 & 26.57 & 33.71 \
\hline
\end{array}$$
-Refer to Table 9.2. If the market price is $28 and the firm produces 5 units of output, then its profit would be

Accepted Answer

A)  -$50. 
B)  -$44. 
C)  $0. 
D)  $18. 
A)  -$50. 
B)  -$44. 
C)  $0. 
D)  $18.

Question 14

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 15

Refer to the information provided in Figure 9.7 below to answer the questions that follow.   Figure 9.7
-Refer to Figure 9.7. If demand for wheat is D1, then in the long run

Accepted Answer

A)  the firm will increase its price and output. 
B)  the firm will exit the industry. 
C)  new firms will enter the industry, and the current firms will expand production. 
D)  firms will increase their output so that their average fixed cost per unit falls. 
A)  the firm will increase its price and output. 
B)  the firm will exit the industry. 
C)  new firms will enter the industry, and the current firms will expand production. 
D)  firms will increase their output so that their average fixed cost per unit falls.

Question 16

Refer to the information provided in Figure 9.1 below to answer the questions that follow.   Figure 9.1
-Refer to Figure 9.1. For this farmer to maximize profits he should produce ________ bushels of wheat.

Accepted Answer

A)  6 
B)  9 
C)  12 
D)  16 
A)  6 
B)  9 
C)  12 
D)  16

Question 17

Refer to Scenario 9.3 below to answer the questions that follow.
SCENARIO 9.3: Investors put up $520,000 to construct a building and purchase all equipment for a new restaurant. The investors expect to earn a minimum return of 10 per cent on their investment. The restaurant is open 52 weeks per year and serves 900 meals per week. The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the fixed costs is the 10% return to the investors and $1,000 per week in other fixed costs. Variable costs include $1,000 in weekly wages and $600 per week for materials, electricity, etc. The restaurant charges $5 on average per meal.
-Refer to Scenario 9.3. Total revenue per week is

Accepted Answer

A)  $3,000. 
B)  $4,000. 
C)  $4,500. 
D)  $8,100. 
A)  $3,000. 
B)  $4,000. 
C)  $4,500. 
D)  $8,100.

Question 18

Refer to the information provided in Figure 9.1 below to answer the questions that follow.   Figure 9.1
-Refer to Figure 9.1. If this farmer is maximizing his profits, his TVC is

Accepted Answer

A)  $24. 
B)  $42. 
C)  $108. 
D)  $255. 
A)  $24. 
B)  $42. 
C)  $108. 
D)  $255.

Question 19

Over all levels of output, if a firm's long-run average cost curve declines as output increases, then

Accepted Answer

A)  small firms and large firms will have identical average costs. 
B)  there should be a large number of firms in the industry. 
C)  small firms would have lower average costs of production than large firms. 
D)  there should be only one firm in the industry. 
A)  small firms and large firms will have identical average costs. 
B)  there should be a large number of firms in the industry. 
C)  small firms would have lower average costs of production than large firms. 
D)  there should be only one firm in the industry.

Question 20

Refer to the information provided in Figure 9.2 below to answer the questions that follow.   Figure 9.2
-Refer to Figure 9.2. This firm's shutdown point corresponds to Point

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
A)  A. 
B)  B. 
C)  C. 
D)  D.

A firm earns a profit if

Every point on a U‐shaped long-run average cost curve represents

If price falls below the minimum point on the AVC curve, in the short run the firm should , and in the long run the firm should .

If a firm earns short-run losses, it exits in the long run.

Which of the following refers to a short run phenomenon?

When an increase of a firm's scale of production leads to higher average costs per unit produced, there is an increasing return to scale.

If the price of an input increases, each individual firm's marginal cost curve shifts and the industry supply curve .

Assume the peanut industry, a perfectly competitive industry, is in long-run equilibrium with a market price of $5. If demand for peanuts increases and this industry is a decreasing-cost industry, long-run equilibrium will be reestablished at a price

If a firm's economic profit is $0, then it must be true that

A firm will shut down in the short run if

Refer to the information provided in Figure 9.7 below to answer the questions that follow. Figure 9.7 -Refer to Figure 9.7. If demand for wheat is D1, then in the long run

Refer to the information provided in Figure 9.1 below to answer the questions that follow. Figure 9.1 -Refer to Figure 9.1. For this farmer to maximize profits he should produce ________ bushels of wheat.

Refer to the information provided in Figure 9.1 below to answer the questions that follow. Figure 9.1 -Refer to Figure 9.1. If this farmer is maximizing his profits, his TVC is

Over all levels of output, if a firm's long-run average cost curve declines as output increases, then

Refer to the information provided in Figure 9.2 below to answer the questions that follow. Figure 9.2 -Refer to Figure 9.2. This firm's shutdown point corresponds to Point

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 Social Choice

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: The Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing and Transitional Economies

Filters

Exam 9: Long-Run Costs and Output Decisions

A firm earns a profit if

Every point on a U‐shaped long-run average cost curve represents

If price falls below the minimum point on the AVC curve, in the short run the firm should ________, and in the long run the firm should ________.

If a firm earns short-run losses, it exits in the long run.

Which of the following refers to a short run phenomenon?

When an increase of a firm's scale of production leads to higher average costs per unit produced, there is an increasing return to scale.

If the price of an input increases, each individual firm's marginal cost curve shifts ________ and the industry supply curve ________.

Assume the peanut industry, a perfectly competitive industry, is in long-run equilibrium with a market price of $5. If demand for peanuts increases and this industry is a decreasing-cost industry, long-run equilibrium will be reestablished at a price

If a firm's economic profit is $0, then it must be true that

A firm will shut down in the short run if

Refer to the information provided in Figure 9.7 below to answer the questions that follow. Figure 9.7 -Refer to Figure 9.7. If demand for wheat is D1, then in the long run

Refer to the information provided in Figure 9.1 below to answer the questions that follow. Figure 9.1 -Refer to Figure 9.1. For this farmer to maximize profits he should produce ________ bushels of wheat.

Refer to the information provided in Figure 9.1 below to answer the questions that follow. Figure 9.1 -Refer to Figure 9.1. If this farmer is maximizing his profits, his TVC is

Over all levels of output, if a firm's long-run average cost curve declines as output increases, then

Refer to the information provided in Figure 9.2 below to answer the questions that follow. Figure 9.2 -Refer to Figure 9.2. This firm's shutdown point corresponds to Point

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 Social Choice

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: The Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing and Transitional Economies

Filters

If price falls below the minimum point on the AVC curve, in the short run the firm should , and in the long run the firm should .

If the price of an input increases, each individual firm's marginal cost curve shifts and the industry supply curve .