Question 1

An industry is in ________ if firms have an incentive to enter or exit in the ________ run.

Accepted Answer

A)  disequilibrium; short 
B)  disequilibrium; long 
C)  equilibrium; short 
D)  equilibrium; long 
A)  disequilibrium; short 
B)  disequilibrium; long 
C)  equilibrium; short 
D)  equilibrium; long

Question 2

Related to the Economics in Practice on page 198. The process of producing solar panels is subject to economies of scale, which means that as the use of solar panels ________, the long-run cost to produce them will likely ________.

Accepted Answer

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

Question 3

Assume firms break even in an industry. New firms ________ attracted to the industry and current ones ________ exiting it.

Accepted Answer

A)  are not; are not 
B)  are not; are 
C)  are; are not 
D)  are; are 
A)  are not; are not 
B)  are not; are 
C)  are; are not 
D)  are; are

Question 4

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 5

In the long run firms will expand as long as there are more ________, and new firms will enter the industry as long as they earn ________.

Accepted Answer

A)  economies of scale; zero profits 
B)  economies of scale; positive economic profits 
C)  diseconomies of scale; zero profits 
D)  diseconomies of scale; positive economic profits 
A)  economies of scale; zero profits 
B)  economies of scale; positive economic profits 
C)  diseconomies of scale; zero profits 
D)  diseconomies of scale; positive economic profits

Question 6

The Taste Freeze Ice Cream Company is a perfectly competitive firm producing where MR = MC. The current market price of an ice cream sandwich is $5.00. Taste Freeze sells 200 ice cream sandwiches. Its AVC is $8.00 and its AFC is $3.00. What should Taste Freeze do?

Accepted Answer

A)  Continue to produce because price exceeds AFC. 
B)  Shut down and produce zero sandwiches because price is less than AVC. 
C)  Decrease production so that AVC will decrease. 
D)  Increase production so that AFC will decrease. 
A)  Continue to produce because price exceeds AFC. 
B)  Shut down and produce zero sandwiches because price is less than AVC. 
C)  Decrease production so that AVC will decrease. 
D)  Increase production so that AFC will decrease.

Question 7

A firm suffering economic losses decides whether or not to produce in the short run on the basis of whether

Accepted Answer

A)  revenues cover variable costs. 
B)  revenues from operating are sufficient to cover fixed costs. 
C)  revenues from operating are sufficient to cover fixed plus variable costs. 
D)  Firms suffering economic losses will always shut down. 
A)  revenues cover variable costs. 
B)  revenues from operating are sufficient to cover fixed costs. 
C)  revenues from operating are sufficient to cover fixed plus variable costs. 
D)  Firms suffering economic losses will always shut down.

Question 8

Refer to the data provided in Table 9.1 below to answer the questions 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 $42, then in the long 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 9

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

Accepted Answer

A)  operate; expand 
B)  operate; exit the industry 
C)  shut down; expand 
D)  shutdown; exit the industry 
A)  operate; expand 
B)  operate; exit the industry 
C)  shut down; expand 
D)  shutdown; exit the industry

Question 10

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 fixed costs equal

Accepted Answer

A)  $1,000. 
B)  $10,000. 
C)  $12,000. 
D)  $21,000. 
A)  $1,000. 
B)  $10,000. 
C)  $12,000. 
D)  $21,000.

Question 11

In the short run, firms earning a profit will want to ________ their profits while firms suffering losses will want to ________ their losses.

Accepted Answer

A)  maximize; maximize 
B)  maximize; minimize 
C)  minimize; maximize 
D)  minimize; minimize 
A)  maximize; maximize 
B)  maximize; minimize 
C)  minimize; maximize 
D)  minimize; minimize

Question 12

The marginal cost curve of a firm above AVC is also its short-run supply curve.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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 a profit maximizing firm will produce ________ units and earn ________.

Accepted Answer

A)  0; negative profits 
B)  5; zero profits 
C)  10; negative profits 
D)  12; positive profits 
A)  0; negative profits 
B)  5; zero profits 
C)  10; negative profits 
D)  12; positive profits

Question 15

Input prices fall as entry occurs in an decreasing-cost industry.

Accepted Answer

A) True 
 B)False

Question 16

Related to the Economics in Practice on page 204: The auto industry exhibits large economies of scale due in part to the large capital investment of the assembly lines. During the recession of 2008-2009, the auto industry ________, and the per-unit costs of producing cars ________.

Accepted Answer

A)  had excess capacity; increased 
B)  was producing above capacity; increased 
C)  had excess capacity; decreased 
D)  was producing at capacity; decreased 
A)  had excess capacity; increased 
B)  was producing above capacity; increased 
C)  had excess capacity; decreased 
D)  was producing at capacity; decreased

Question 17

A firm suffers losses if

Accepted Answer

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

Question 18

The short-run industry supply curve for a perfectly competitive industry is the

Accepted Answer

A)  horizontal sum of the individual firms' marginal cost curves above AVC. 
B)  vertical sum of the individual firms' marginal cost curves above AVC. 
C)  horizontal sum of the individual firms' marginal cost curves above ATC. 
D)  vertical sum of the individual firms' marginal cost curves above ATC. 
A)  horizontal sum of the individual firms' marginal cost curves above AVC. 
B)  vertical sum of the individual firms' marginal cost curves above AVC. 
C)  horizontal sum of the individual firms' marginal cost curves above ATC. 
D)  vertical sum of the individual firms' marginal cost curves above ATC.

Question 19

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 20

Refer to the information provided in Figure 9.1 below to answer the questions that follow.   Figure 9.1
-Refer to Figure 9.1. This farmer would earn a zero economic profit if price was

Accepted Answer

A)  $7. 
B)  $9. 
C)  $10. 
D)  $11. 
A)  $7. 
B)  $9. 
C)  $10. 
D)  $11.

An industry is in if firms have an incentive to enter or exit in the run.

Related to the Economics in Practice on page 198. The process of producing solar panels is subject to economies of scale, which means that as the use of solar panels , the long-run cost to produce them will likely .

Assume firms break even in an industry. New firms attracted to the industry and current ones exiting it.

If a firm shuts down in the short run, then

In the long run firms will expand as long as there are more , and new firms will enter the industry as long as they earn .

The Taste Freeze Ice Cream Company is a perfectly competitive firm producing where MR = MC. The current market price of an ice cream sandwich is $5.00. Taste Freeze sells 200 ice cream sandwiches. Its AVC is $8.00 and its AFC is $3.00. What should Taste Freeze do?

A firm suffering economic losses decides whether or not to produce in the short run on the basis of whether

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

In the short run, firms earning a profit will want to their profits while firms suffering losses will want to their losses.

The marginal cost curve of a firm above AVC is also its short-run supply curve.

As new firms enter an increasing-cost industry,

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 a profit maximizing firm will produce units and earn .

Input prices fall as entry occurs in an decreasing-cost industry.

Related to the Economics in Practice on page 204: The auto industry exhibits large economies of scale due in part to the large capital investment of the assembly lines. During the recession of 2008-2009, the auto industry , and the per-unit costs of producing cars .

A firm suffers losses if

The short-run industry supply curve for a perfectly competitive industry is the

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

Refer to the information provided in Figure 9.1 below to answer the questions that follow. Figure 9.1 -Refer to Figure 9.1. This farmer would earn a zero economic profit if price was

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

An industry is in ________ if firms have an incentive to enter or exit in the ________ run.

Related to the Economics in Practice on page 198. The process of producing solar panels is subject to economies of scale, which means that as the use of solar panels ________, the long-run cost to produce them will likely ________.

Assume firms break even in an industry. New firms ________ attracted to the industry and current ones ________ exiting it.

If a firm shuts down in the short run, then

In the long run firms will expand as long as there are more ________, and new firms will enter the industry as long as they earn ________.

The Taste Freeze Ice Cream Company is a perfectly competitive firm producing where MR = MC. The current market price of an ice cream sandwich is $5.00. Taste Freeze sells 200 ice cream sandwiches. Its AVC is $8.00 and its AFC is $3.00. What should Taste Freeze do?

A firm suffering economic losses decides whether or not to produce in the short run on the basis of whether

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

In the short run, firms earning a profit will want to ________ their profits while firms suffering losses will want to ________ their losses.

The marginal cost curve of a firm above AVC is also its short-run supply curve.

As new firms enter an increasing-cost industry,

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 a profit maximizing firm will produce ________ units and earn ________.

Input prices fall as entry occurs in an decreasing-cost industry.

Related to the Economics in Practice on page 204: The auto industry exhibits large economies of scale due in part to the large capital investment of the assembly lines. During the recession of 2008-2009, the auto industry ________, and the per-unit costs of producing cars ________.

A firm suffers losses if

The short-run industry supply curve for a perfectly competitive industry is the

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

Refer to the information provided in Figure 9.1 below to answer the questions that follow. Figure 9.1 -Refer to Figure 9.1. This farmer would earn a zero economic profit if price was

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

An industry is in if firms have an incentive to enter or exit in the run.

Related to the Economics in Practice on page 198. The process of producing solar panels is subject to economies of scale, which means that as the use of solar panels , the long-run cost to produce them will likely .

Assume firms break even in an industry. New firms attracted to the industry and current ones exiting it.

In the long run firms will expand as long as there are more , and new firms will enter the industry as long as they earn .

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

In the short run, firms earning a profit will want to their profits while firms suffering losses will want to their losses.

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 a profit maximizing firm will produce units and earn .

Related to the Economics in Practice on page 204: The auto industry exhibits large economies of scale due in part to the large capital investment of the assembly lines. During the recession of 2008-2009, the auto industry , and the per-unit costs of producing cars .