Question 1

Some competitive firms are willing to operate at a loss in the short run because their revenues are at least able to cover their fixed costs.

Accepted Answer

A) True 
 B)False  False

Question 2

Draw typical average total cost,average variable cost,and marginal cost curves for a competitive firm with price at the shutdown point.Show that total revenue equals variable costs at this quantity.Also show the firm's losses at this quantity.

Accepted Answer

If total revenue is equal to total variable cost for a price-taking firm,then price is equal to average variable cost,as shown in the diagram below.Economic profit is equal to the difference between total revenue and total cost.This difference is illustrated by the shaded rectangle in the diagram below.The firm is earning a negative economic profit because price,which also equals average variable cost,is less than average total cost.The difference between variable cost and total cost is the fixed cost,so the area of the shaded rectangle also equals total fixed cost.

Question 3

Exhibit 8-6  
-Refer to Exhibit 8-6.At an output of 100 units,fixed costs equal

Accepted Answer

A) $550. 
B) $200. 
C) $450. 
D) $1,000. 
E) $350. 
A) $550. 
B) $200. 
C) $450. 
D) $1,000. 
E) $350. C

Question 4

The minimum efficient scale of a firm is the

Accepted Answer

A) largest scale of production for which the marginal cost is at a minimum. 
B) largest scale of production for which the long-run average total cost is at a minimum. 
C) largest scale of production for which the long-run average variable cost is at a minimum. 
D) smallest scale of production for which the long-run average total cost is at a minimum. 
E) smallest scale of production for which the long-run average variable cost is at a minimum. 
A) largest scale of production for which the marginal cost is at a minimum. 
B) largest scale of production for which the long-run average total cost is at a minimum. 
C) largest scale of production for which the long-run average variable cost is at a minimum. 
D) smallest scale of production for which the long-run average total cost is at a minimum. 
E) smallest scale of production for which the long-run average variable cost is at a minimum.

Question 5

Exhibit 8-1  
-Refer to Exhibit 8-1.At 70 units of output,fixed costs equal

Accepted Answer

A) $50. 
B) $100. 
C) $1,000. 
D) $3,500. 
E) $4,000. 
A) $50. 
B) $100. 
C) $1,000. 
D) $3,500. 
E) $4,000.

Question 6

The slope of the average fixed curve is always negative.

Accepted Answer

A) True 
 B)False

Question 7

Marginal cost

Accepted Answer

A) is usually zero in the short run. 
B) equals total costs plus total fixed costs. 
C) will fall with output until the onset of diminishing marginal returns. 
D) does not vary with the quantity of output that a firm produces. 
E) is usually zero in the long run. 
A) is usually zero in the short run. 
B) equals total costs plus total fixed costs. 
C) will fall with output until the onset of diminishing marginal returns. 
D) does not vary with the quantity of output that a firm produces. 
E) is usually zero in the long run.

Question 8

Exhibit 8-4  
-Refer to Exhibit 8-4.Calculate the average variable cost for the fifth unit of output.

Accepted Answer

$30.40 AVC = (TC - F

Question 9

The breakeven point is the point where price equals a firm's average total cost.

Accepted Answer

A) True 
 B)False

Question 10

Marginal product of labor is the change in output divided by a change in labor input.

Accepted Answer

A) True 
 B)False

Question 11

Economies of scope occur when

Accepted Answer

A) two firms producing different products merge and average total cost declines. 
B) a firm increases output and long-run average total cost declines. 
C) an increase in capital shifts the short-run average total cost curve down. 
D) one firm spins off and average total cost declines. 
E) average total cost increases along with firm expansion. 
A) two firms producing different products merge and average total cost declines. 
B) a firm increases output and long-run average total cost declines. 
C) an increase in capital shifts the short-run average total cost curve down. 
D) one firm spins off and average total cost declines. 
E) average total cost increases along with firm expansion.

Question 12

In the long run,

Accepted Answer

A) most of the firm's resources cannot be varied. 
B) none of the firm's resources are variable. 
C) new technology cannot be introduced. 
D) all of a firm's resources are variable. 
E) at least one of the firm's resources is fixed. 
A) most of the firm's resources cannot be varied. 
B) none of the firm's resources are variable. 
C) new technology cannot be introduced. 
D) all of a firm's resources are variable. 
E) at least one of the firm's resources is fixed.

Question 13

If a firm is currently producing zero output in the short run,total cost equals

Accepted Answer

A) fixed cost. 
B) zero. 
C) variable cost. 
D) average variable cost. 
E) marginal cost. 
A) fixed cost. 
B) zero. 
C) variable cost. 
D) average variable cost. 
E) marginal cost.

Question 14

If a profit-maximizing,competitive firm is producing at a loss in the short run,then

Accepted Answer

A) P  AVC. 
A) P  AVC.

Question 15

If a firm is experiencing diminishing returns to labor,

Accepted Answer

A) marginal product of labor must be decreasing. 
B) it must be producing in the long run. 
C) marginal cost must be decreasing. 
D) the firm must be experiencing diseconomies of scale. 
E) the firm is apparently hiring less-qualified units of labor. 
A) marginal product of labor must be decreasing. 
B) it must be producing in the long run. 
C) marginal cost must be decreasing. 
D) the firm must be experiencing diseconomies of scale. 
E) the firm is apparently hiring less-qualified units of labor.

Question 16

The firm expands its capital up to the point that

Accepted Answer

A) long-run average costs are minimized. 
B) fixed costs are minimized. 
C) average variable costs are minimized. 
D) profits are maximized. 
E) average total costs are minimized. 
A) long-run average costs are minimized. 
B) fixed costs are minimized. 
C) average variable costs are minimized. 
D) profits are maximized. 
E) average total costs are minimized.

Question 17

Which of the following is a good example of variable costs?

Accepted Answer

A) Cost of building a factory 
B) Land cost 
C) Cost of heavy machinery 
D) Wage payments for workers 
E) Capital costs 
A) Cost of building a factory 
B) Land cost 
C) Cost of heavy machinery 
D) Wage payments for workers 
E) Capital costs

Question 18

Exhibit 8-5  
-Refer to Exhibit 8-5.The curve marked II is the firm's

Accepted Answer

A) marginal cost curve. 
B) average fixed cost curve. 
C) total cost curve. 
D) average total cost curve. 
E) average variable cost curve. 
A) marginal cost curve. 
B) average fixed cost curve. 
C) total cost curve. 
D) average total cost curve. 
E) average variable cost curve.

Question 19

Minimum efficient scale is the largest output size for which the long-run average total cost is at a minimum.

Accepted Answer

A) True 
 B)False

Question 20

Average total cost is average variable cost plus marginal cost.

Accepted Answer

A) True 
 B)False

Exam 8: Costs and the Changes at Firms Over Time

Some competitive firms are willing to operate at a loss in the short run because their revenues are at least able to cover their fixed costs.

Draw typical average total cost,average variable cost,and marginal cost curves for a competitive firm with price at the shutdown point.Show that total revenue equals variable costs at this quantity.Also show the firm's losses at this quantity.

Exhibit 8-6 -Refer to Exhibit 8-6.At an output of 100 units,fixed costs equal

The minimum efficient scale of a firm is the

Exhibit 8-1 -Refer to Exhibit 8-1.At 70 units of output,fixed costs equal

The slope of the average fixed curve is always negative.

Marginal cost

Exhibit 8-4 -Refer to Exhibit 8-4.Calculate the average variable cost for the fifth unit of output.

The breakeven point is the point where price equals a firm's average total cost.

Marginal product of labor is the change in output divided by a change in labor input.

Economies of scope occur when

In the long run,

If a firm is currently producing zero output in the short run,total cost equals

If a profit-maximizing,competitive firm is producing at a loss in the short run,then

If a firm is experiencing diminishing returns to labor,

The firm expands its capital up to the point that

Which of the following is a good example of variable costs?

Exhibit 8-5 -Refer to Exhibit 8-5.The curve marked II is the firm's

Minimum efficient scale is the largest output size for which the long-run average total cost is at a minimum.

Average total cost is average variable cost plus marginal cost.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors,price Ceilings,and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

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 and Globalization

International Trade

International Finance

Reading,understanding,and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Present Discounted Value

The Miracle of Compound Growth

Deriving the Growth Accounting Formula

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

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