Deck 6: Perfectly Competitive Supply

Question 1

John is trying to decide how to divide his time between his job as a stocker in the local grocery store,which pays $7 per hour for as many hours as he chooses to work,and cleaning windows for the businesses downtown.He makes $2 for every window he cleans.John is indifferent between the two tasks,and the number of windows he can clean depends on how many hours he spends cleaning in a day,as shown in the table below: $$\begin{array} { | l | l | } \hline \begin{array} { l } \text { Cleaning time } \\\text { (hr/day) }\end{array} & \begin{array} { l } \text { Total numbers of } \\\text { windows cleaned }\end{array} \\\hline 0 & 0 \\\hline 1 & 7 \\\hline 2 & 11 \\\hline 3 & 14 \\\hline 4 & 16 \\\hline 5 & 17 \\\hline\end{array}$$
His benefit from the first hour cleaning windows is

A) $14.
B) $18.
C) $7.
D) $2.

Answer 1

$18.

Question 2

John is trying to decide how to divide his time between his job as a stocker in the local grocery store,which pays $7 per hour for as many hours as he chooses to work,and cleaning windows for the businesses downtown.He makes $2 for every window he cleans.John is indifferent between the two tasks,and the number of windows he can clean depends on how many hours he spends cleaning in a day,as shown in the table below: $$\begin{array} { | l | l | } \hline \begin{array} { l } \text { Cleaning time } \\\text { (hr/day) }\end{array} & \begin{array} { l } \text { Total numbers of } \\\text { windows cleaned }\end{array} \\\hline 0 & 0 \\\hline 1 & 7 \\\hline 2 & 11 \\\hline 3 & 14 \\\hline 4 & 16 \\\hline 5 & 17 \\\hline\end{array}$$
Does the 3^rd hour spent cleaning satisfy the cost benefit principle?

A) Yes,since he makes $28.
B) Yes,since the additional amount earned is $14.
C) No,since the additional amount earned is $6.
D) Yes,since the additional amount earned is $6.

Answer 2

No,since the additional amount earned is $6.

Question 3

John is trying to decide how to divide his time between his job as a stocker in the local grocery store,which pays $7 per hour for as many hours as he chooses to work,and cleaning windows for the businesses downtown.He makes $2 for every window he cleans.John is indifferent between the two tasks,and the number of windows he can clean depends on how many hours he spends cleaning in a day,as shown in the table below: $$\begin{array} { | l | l | } \hline \begin{array} { l } \text { Cleaning time } \\\text { (hr/day) }\end{array} & \begin{array} { l } \text { Total numbers of } \\\text { windows cleaned }\end{array} \\\hline 0 & 0 \\\hline 1 & 7 \\\hline 2 & 11 \\\hline 3 & 14 \\\hline 4 & 16 \\\hline 5 & 17 \\\hline\end{array}$$
Refer to the information above.What is John's hourly opportunity cost of cleaning windows?

A) $14
B) $8
C) $7
D) $2

Answer 3

$7

Question 4

Individual supply curves generally slope __________ because _______.

A) downward;individual's become more efficient with practice
B) upward;profits increase with quantity
C) downward;inputs are cheaper when purchased in high volume
D) upward;the easiest tasks are completed first

Question 5

The most important decision that sellers make is:

A) whether to set profit maximization as a goal.
B) whether to produce another unit.
C) whether to change the price of their product.
D) whether to expand factory facilities.

Question 6

Total revenue minus total explicit and implicit costs defines:

A) gross earnings.
B) profit.
C) marginal earnings.
D) net worth.

Question 7

John is trying to decide how to divide his time between his job as a stocker in the local grocery store,which pays $7 per hour for as many hours as he chooses to work,and cleaning windows for the businesses downtown.He makes $2 for every window he cleans.John is indifferent between the two tasks,and the number of windows he can clean depends on how many hours he spends cleaning in a day,as shown in the table below: $$\begin{array} { | l | l | } \hline \begin{array} { l } \text { Cleaning time } \\\text { (hr/day) }\end{array} & \begin{array} { l } \text { Total numbers of } \\\text { windows cleaned }\end{array} \\\hline 0 & 0 \\\hline 1 & 7 \\\hline 2 & 11 \\\hline 3 & 14 \\\hline 4 & 16 \\\hline 5 & 17 \\\hline\end{array}$$
Refer to the information above.What is the smallest amount of money per window cleaned that would induce John to spend at least one hour per day cleaning windows?

A) $7
B) $1
C) $3
D) $2

Question 8

John is trying to decide how to divide his time between his job as a stocker in the local grocery store,which pays $7 per hour for as many hours as he chooses to work,and cleaning windows for the businesses downtown.He makes $2 for every window he cleans.John is indifferent between the two tasks,and the number of windows he can clean depends on how many hours he spends cleaning in a day,as shown in the table below: $$\begin{array} { | l | l | } \hline \begin{array} { l } \text { Cleaning time } \\\text { (hr/day) }\end{array} & \begin{array} { l } \text { Total numbers of } \\\text { windows cleaned }\end{array} \\\hline 0 & 0 \\\hline 1 & 7 \\\hline 2 & 11 \\\hline 3 & 14 \\\hline 4 & 16 \\\hline 5 & 17 \\\hline\end{array}$$
What is John's reservation price for the 4^th and 5^th hours spent cleaning windows.

A) $7 and $7.50 respectively.
B) $2 and $3.50 respectively.
C) $3.50 and $7 respectively.
D) $11 and $14 respectively.

Question 9

John is trying to decide how to divide his time between his job as a stocker in the local grocery store,which pays $7 per hour for as many hours as he chooses to work,and cleaning windows for the businesses downtown.He makes $2 for every window he cleans.John is indifferent between the two tasks,and the number of windows he can clean depends on how many hours he spends cleaning in a day,as shown in the table below: $$\begin{array} { | l | l | } \hline \begin{array} { l } \text { Cleaning time } \\\text { (hr/day) }\end{array} & \begin{array} { l } \text { Total numbers of } \\\text { windows cleaned }\end{array} \\\hline 0 & 0 \\\hline 1 & 7 \\\hline 2 & 11 \\\hline 3 & 14 \\\hline 4 & 16 \\\hline 5 & 17 \\\hline\end{array}$$
Refer to the information above.If we plot John's opportunity cost per window on the vertical axis and the number of windows cleaned each day on the horizontal axis,we will have John's _______ curve for window-cleaning services.

A) production possibilities
B) supply
C) benefit
D) demand

Question 10

Your neighbors have asked you to look after their dog while they are on vacation.It will take you one hour per day to feed,walk,and care for the dog,which you can do either before or after you go to work.Your regular job pays $10 per hour,and you can work for up to eight hours per day.The smallest amount of money you would accept to take this job is:

A) $10 per day,because that is your opportunity cost of one hour of work.
B) $15 per day,because overtime wages are generally equal to 1.5 times your regular wage when you work more than eight hours in one day.
C) zero,because your regular job is not available for the ninth hour of work.
D) the value of one hour of leisure,which is greater than zero.

Question 11

A rational seller will sell another unit if:

A) the profit earned from the sale of the next unit is greater than the profit earned on the sale of the last unit.
B) the cost of making the next unit is less than the revenue gained by selling the next unit.
C) the quantity demanded of the seller's output is greater than zero.
D) the price that could be charged is greater than the equilibrium price.

Question 12

John is trying to decide how to divide his time between his job as a stocker in the local grocery store,which pays $7 per hour for as many hours as he chooses to work,and cleaning windows for the businesses downtown.He makes $2 for every window he cleans.John is indifferent between the two tasks,and the number of windows he can clean depends on how many hours he spends cleaning in a day,as shown in the table below: $$\begin{array} { | l | l | } \hline \begin{array} { l } \text { Cleaning time } \\\text { (hr/day) }\end{array} & \begin{array} { l } \text { Total numbers of } \\\text { windows cleaned }\end{array} \\\hline 0 & 0 \\\hline 1 & 7 \\\hline 2 & 11 \\\hline 3 & 14 \\\hline 4 & 16 \\\hline 5 & 17 \\\hline\end{array}$$
A second hour cleaning windows will yield additional earnings of _________.

A) $2
B) $14
C) $8
D) $7

Question 13

John is trying to decide how to divide his time between his job as a stocker in the local grocery store,which pays $7 per hour for as many hours as he chooses to work,and cleaning windows for the businesses downtown.He makes $2 for every window he cleans.John is indifferent between the two tasks,and the number of windows he can clean depends on how many hours he spends cleaning in a day,as shown in the table below: $$\begin{array} { | l | l | } \hline \begin{array} { l } \text { Cleaning time } \\\text { (hr/day) }\end{array} & \begin{array} { l } \text { Total numbers of } \\\text { windows cleaned }\end{array} \\\hline 0 & 0 \\\hline 1 & 7 \\\hline 2 & 11 \\\hline 3 & 14 \\\hline 4 & 16 \\\hline 5 & 17 \\\hline\end{array}$$
The first hour John spends cleaning windows costs him ________ that he could have earned in the grocery store.

A) $2
B) $7
C) $14
D) $18

Question 14

As the market price of a service increases,more people will decide to perform that service because:

A) higher prices always result in higher revenue.
B) more people will find that the market price exceeds their reservation price.
C) higher-priced services are more prestigious.
D) service jobs are in higher demand than manufacturing jobs.

Question 15

Your math professor has assigned 20 homework problems that are due next week.After working for an hour,you notice you have completed 4 problems.After another hour,you have completed 3 more problems.During the third hour,you finish 2 problems.What economic principle best explains this?

A) The equilibrium principle: the supply of problems is greater than your demand for problems.
B) The increasing opportunity cost principle: you completed the easiest problems first.
C) The cost-benefit principle: the benefit of working an additional problem is less than the cost.
D) The principle of comparative advantage: you are better at English than at math.

Question 16

An individual's supply curve shows his or her:

A) willingness to pay at each quantity.
B) opportunity cost of producing at each quantity.
C) hourly wage for producing at each quantity.
D) profit from producing at each quantity.

Question 17

A person's reservation price for performing a task equals

A) the equilibrium wage.
B) the total value of all other things the person could be doing during that time.
C) the value of the most attractive alternative activity that the person could be doing during that time.
D) the price for which the good produced could be sold.

Question 18

According to the cost-benefit principle,you should switch to another task or job when:

A) the benefit from performing the new task is less than the benefit from continuing to perform the original task.
B) the benefit from performing the new task just exceeds the opportunity cost of performing that new task.
C) your productivity at the first task has diminished to the point at which the benefit from continuing with that task is zero.
D) the opportunity cost of performing the original task is less than the benefit of performing the original task.

Question 19

The primary objective of most private firms is to:

A) maximize revenue.
B) maximize profit.
C) minimize cost.
D) maximize output.

Question 20

Why are you more likely to see a poor person picking up aluminum cans than a wealthy person?

A) Wealthy people care less about the environment.
B) Wealthy people have higher opportunity costs for their time.
C) Wealthy people are more concerned about their public image.
D) Wealthy people are more likely to be aware of diseases that are transmitted through litter.

Question 21

An imperfectly competitive firm is one that:

A) has some degree of influence over the price it charges for its output.
B) charges any price it wishes.
C) revenue maximizes.
D) confronts a perfectly inelastic demand curve.

Question 22

Jenny sells lemonade by the street during the summer time.Several other kids also sell lemonade in Jenny's neighborhood.
Refer to the information above.Suppose that the first week of summer,Jenny charged 25 cents for an 8-ounce cup of lemonade,her next-door neighbor Sam charged 50 cents for an 8-ounce cup of lemonade,and Alex across the street charged 15 cents for an 8-ounce cup of lemonade.What is most likely to happen?

A) Everyone will start to charge 50 cents to maximize revenue.
B) A price war will break out,and all of the kids will gradually increase their prices.
C) Each kid will keep his or her price at the original amount,because they had chosen those prices to maximize profits.
D) Eventually prices will equalize at all three lemonade stands.

Question 23

Jenny sells lemonade by the street during the summer time.Several other kids also sell lemonade in Jenny's neighborhood.
Refer to the information above.The lemonade stands are perfectly competitive because:

A) the kids get their ingredients from home and don't have to pay for them.
B) it is easy to open a stand and easy to close it down.
C) the table,cups and lemonade pitchers used in the stands are productive resources that are only useful for lemonade stands.
D) the kids do not have regular jobs,so their opportunity costs are zero.

Question 24

A firm's total profit equals:

A) marginal benefit minus marginal cost.
B) (price minus average total cost)times the quantity sold.
C) price times quantity sold.
D) price minus average total cost.

Question 25

It takes a bus and a driver to produce bus service for the students in a college town.Therefore,the bus and the driver are the ___________ for bus service.

A) short run output
B) variable cost
C) factors of production
D) only inputs in the long run

Question 26

Which of the following is NOT true of a perfectly competitive firm?

A) It faces a perfectly elastic demand curve.
B) It is unable to influence the market price of the good it sells.
C) It seeks to maximize revenue.
D) Relative to the size of the market,the firm is small.

Question 27

In which of the following markets do all firms sell the same standardized product?

A) Four-door cars
B) 2% milk
C) Desktop computers
D) Sandwiches

Question 28

Which of the following statements is true for both General Motors and a locally owned restaurant?

A) Both are perfect competitors.
B) Both confront perfectly elastic demand for their products.
C) Neither firm is able to influence the price of their products.
D) Both seek to maximize profits.

Question 29

When economists use standard supply and demand theory,they are assuming that the supply curve describes:

A) all firms.
B) firms that operate in perfectly competitive markets.
C) firms that face perfectly elastic supply.
D) Firms in the short run.

Question 30

Which of the following is a condition that is necessary for a market to be perfectly competitive?

A) The firms face inelastic demand for their product.
B) Market demand for the product is perfectly elastic.
C) Firms can easily buy and sell the productive resources necessary to compete in the market.
D) Consumers display strong brand loyalty.

Question 31

Last summer,Casey took fresh vegetables to sell at the Farmer's Market,but this year,Casey did not plant any vegetables and went to work at the local bank.
Refer to the information above.It was easy for Casey to leave the vegetable growing business because:

A) the productive resources that Casey used were mobile.
B) vegetable growing is a seasonal occupation.
C) demand for vegetables is price inelastic.
D) inputs to vegetable production are specialized.

Question 32

A price-taker confronts a demand curve that is:

A) vertical at the market price.
B) upward sloping.
C) downward sloping.
D) horizontal at the market price.

Question 33

Last summer,Casey took fresh vegetables to sell at the Farmer's Market,but this year,Casey did not plant any vegetables and went to work at the local bank.
Refer to the information above.If Casey's decision to change careers did not change the market price for vegetables at the Farmers' Market,it is because:

A) demand for vegetables did not change.
B) the Farmers' Market attracts a large number of vegetable farmers.
C) demand for vegetables increased this year.
D) the price is set by a regulatory body.

Question 34

The short run is defined as:

A) one year or less.
B) a period in which all factors of production are variable.
C) the period of time between quarterly accounting reports.
D) a period in which at least one factor of production is fixed.

Question 35

Which firm is most likely to meet the condition for perfect competition that resources are mobile?

A) A farm
B) A sidewalk pretzel vendor
C) A department store
D) A movie theater

Question 36

Last summer,Casey took fresh vegetables to sell at the Farmer's Market,but this year,Casey did not plant any vegetables and went to work at the local bank.
Refer to the information above.If you observed Casey's career change,you might guess that:

A) Casey's opportunity costs of gardening exceeded Casey's benefits from working at the bank.
B) Casey's opportunity costs of working at the bank exceeded Casey's benefits from gardening.
C) Casey's opportunity costs of working at the bank exceeded Casey's opportunity costs of gardening.
D) Casey's opportunity costs of gardening exceeded Casey's opportunity costs of working at the bank.

Question 37

One implication of the shape of the demand curve that faces a perfectly competitive firm is that:

A) If the firm increases its price above the market price,it will earn higher revenue.
B) If the firm decreases its price below the market price,it will earn higher revenue.
C) If the firm increases its price above the market price,it will earn zero revenue.
D) The market is unable to reach a new equilibrium if prices change.

Question 38

Jenny sells lemonade by the street during the summer time.Several other kids also sell lemonade in Jenny's neighborhood.
Refer to the information above.If the lemonade market is perfectly competitive and price is already at the equilibrium level,Jenny can increase her revenue if she:

A) decreases the price of lemonade and increases the output.
B) increases the price of lemonade and decreases the output.
C) increases both the price and output of lemonade.
D) keeps the price the same and increases the output.

Question 39

A profit-maximizing perfectly competitive firm must decide:

A) only on what price to charge,taking output as fixed.
B) both what price to charge and how much to produce.
C) only on how much to produce,taking price of the good as fixed.
D) only on which industry to join,taking price and output as fixed.

Question 40

Jenny sells lemonade by the street during the summer time.Several other kids also sell lemonade in Jenny's neighborhood.
Refer to the information above.The lemonade market in Jenny's neighborhood is more likely to be perfectly competitive if:

A) all of the kids advertise heavily.
B) each stand tries to get more customers by offering a different variety of lemonades and snacks.
C) each lemonade stand sells the same kind of lemonade.
D) some of the neighborhood parents build elaborate booths for their kids' stands while some kids sell from makeshift tables.

Question 41

Which of the following is most likely to be a variable factor of production at a university?

A) The number of teaching assistants.
B) The size of the basketball arena or football stadium.
C) The school mascot.
D) The location of the university.

Question 42

When some factors of production are fixed,in order to increase production by equal amounts,a firm would need to add successively:

A) smaller and smaller quantities of the variable factor.
B) constant quantities of the variable factor.
C) larger and larger quantities of the variable factor.
D) larger and larger quantities of the fixed factors.

Question 43

This phone center uses only equipment and workers to provide service. $$\begin{array} { | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Output } \\\text { (units) }\end{array} & \text { Equipment } & \text { Workers } & \text { Total Cost } & \begin{array} { c } \text { Marginal } \\\text { Cost }\end{array} & \begin{array} { c } \text { Average } \\\text { Variable Cost }\end{array} \\\hline 0.5 & 1 & 2 & & & \\\hline 1 & 1 & 4 & & & \\\hline 3 & 1 & 6 & & & \\\hline 8 & 1 & 8 & & & \\\hline 11 & 1 & 10 & & & \\\hline 12 & 1 & 12 & & & \\\hline\end{array}$$
Suppose that one unit of equipment costs $10 and each worker earns $5.What is the total cost of producing 3 units of output?

A) $25
B) $30
C) $35
D) $40

Question 44

A fixed factor of production:

A) is fixed in the long run but variable in the short run.
B) is fixed only in the short run.
C) is fixed in both the short run and the long run.
D) is common in large firms but rare in small firms.

Question 45

Suppose 30 employee-hours can produce 50 units of output.Assuming the law of diminishing marginal returns is present,to produce 100 units of output will require:

A) an additional 30 employee-hours.
B) more than 30 additional employee-hours.
C) a total of 60 or less employee-hours.
D) less than 30 additional employee-hours.

Question 46

Which of the following factors of production is likely to be fixed in the short run?

A) The location of the firm.
B) The number of employee-hours.
C) The amount of electricity consumed.
D) The amount of paper used.

Question 47

If a firm spends $400 to produce 20 units of output and spends $880 to produce 40 units,then between 20 and 40 units of output,the marginal cost of production is:

A) $20.
B) $24.
C) $22.
D) $480.

Question 48

Which of the following is most likely to be a fixed factor of production at a university?

A) The number of personal computers.
B) The number of lecture halls.
C) The number of professors and lecturers.
D) The amount of chalk.

Question 49

The long run is defined as

A) one year or more.
B) a period in which all factors of production are variable.
C) the period of time between annual accounting reports.
D) a period in which at least one factor of production is fixed.

Question 50

The location of a firm will be a _________ factor of production in ________ run.

A) variable;the short
B) fixed;both the short and long
C) variable;the long
D) fixed;the long

Question 51

To produce 150 units of output,the firm must use 3 employee-hours.To produce 300 units of output,the firm must use 8 employee-hours.Apparently,the firm is:

A) in the long run.
B) experiencing diminishing marginal returns.
C) not using any fixed factors of production.
D) failing to profit maximize.

Question 52

This phone center uses only equipment and workers to provide service. $$\begin{array} { | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Output } \\\text { (units) }\end{array} & \text { Equipment } & \text { Workers } & \text { Total Cost } & \begin{array} { c } \text { Marginal } \\\text { Cost }\end{array} & \begin{array} { c } \text { Average } \\\text { Variable Cost }\end{array} \\\hline 0.5 & 1 & 2 & & & \\\hline 1 & 1 & 4 & & & \\\hline 3 & 1 & 6 & & & \\\hline 8 & 1 & 8 & & & \\\hline 11 & 1 & 10 & & & \\\hline 12 & 1 & 12 & & & \\\hline\end{array}$$
Relative to costs when equipment cost $10,if the price of equipment increased to $20 and nothing else changed,

A) Total Cost would increase by $10 per unit of output.
B) Marginal Cost would increase by $20 divided by units of output.
C) Marginal Cost would not change.
D) Average Total cost would increase by $10 at each level of output.

Question 53

Marginal cost is calculated as:

A) total revenue minus total costs.
B) the change in output divided by the change in total costs.
C) the percentage change in total costs divided by the percentage change in output.
D) the change in total costs divided by the change in output.

Question 54

One reason that variable factors of production tend to show diminishing returns in the short run is that:

A) too much capital equipment is idle.
B) there are more and more workers using a fixed amount of productive resources.
C) the firm has become too large to effectively manage workers.
D) the cost of hiring additional workers increases as firms seek to hire more.

Question 55

Assume that a firm uses 13 employee-hours and an office to produce 100 units of output.The price of output is $5,the wage rate is $10,and rent is $200.The firm will earn a _____ of _____.

A) profit;$370
B) loss;$200
C) profit;$170
D) loss;$170

Question 56

If a firm is experiencing diminishing returns,you can conclude that:

A) marginal costs are also declining.
B) marginal costs are increasing.
C) total labor costs are constant.
D) average revenue is increasing.

Question 57

This phone center uses only equipment and workers to provide service. $$\begin{array} { | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Output } \\\text { (units) }\end{array} & \text { Equipment } & \text { Workers } & \text { Total Cost } & \begin{array} { c } \text { Marginal } \\\text { Cost }\end{array} & \begin{array} { c } \text { Average } \\\text { Variable Cost }\end{array} \\\hline 0.5 & 1 & 2 & & & \\\hline 1 & 1 & 4 & & & \\\hline 3 & 1 & 6 & & & \\\hline 8 & 1 & 8 & & & \\\hline 11 & 1 & 10 & & & \\\hline 12 & 1 & 12 & & & \\\hline\end{array}$$
For this firm,Marginal Cost

A) equals Average Variable Cost at Average Variable Cost's minimum point.
B) equals Average Total Cost at Average Total Cost's maximum point.
C) is always greater than Average Variable Cost.
D) is always less than Average Variable Cost.

Question 58

This phone center uses only equipment and workers to provide service. $$\begin{array} { | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Output } \\\text { (units) }\end{array} & \text { Equipment } & \text { Workers } & \text { Total Cost } & \begin{array} { c } \text { Marginal } \\\text { Cost }\end{array} & \begin{array} { c } \text { Average } \\\text { Variable Cost }\end{array} \\\hline 0.5 & 1 & 2 & & & \\\hline 1 & 1 & 4 & & & \\\hline 3 & 1 & 6 & & & \\\hline 8 & 1 & 8 & & & \\\hline 11 & 1 & 10 & & & \\\hline 12 & 1 & 12 & & & \\\hline\end{array}$$
Assuming equipment costs $10 per unit and each worker earns $5,Average Variable Costs are minimized when output is approximately

A) 3 units.
B) 8 units.
C) 11 units.
D) 12 units.

Question 59

Congestion of the work space and fixed factors of production at the firm:

A) explain high employee turnover.
B) cause increased workspace violence.
C) lead to diminishing marginal returns.
D) result in increased self-employment.

Question 60

A variable factor of production:

A) is fixed in the long run but variable in the short run.
B) plays no role in the law of diminishing marginal returns.
C) is variable in both the short run and the long run.
D) is variable only in the short run.

Question 61

Suppose a perfectly competitive firm knows that it is not going to shut down,but it is going to earn a loss.It should pick the output level where:

A) total costs are minimized.
B) price equals marginal cost.
C) total revenues are maximized.
D) the costs of the variable factors of production are minimized.

Question 62

The price equals marginal cost rule for profit maximization is a specific example of which of the following core principles?

A) Scarcity.
B) Cost-benefit.
C) Comparative advantage.
D) Efficiency.

Question 63

Acme Dynamite has $2000 of variable costs and $500 of fixed costs when its output is 250 units.It sells each unit for $25.
If the price of the product drops to $6 each,should this firm continue operation during the short run?

A) No,because Price is less than Average Total Cost.
B) Yes,because Price is greater than Average Variable Cost.
C) No,because Price is less than Average Variable Cost.
D) No,because Price is not greater than Average Total Cost.

Question 64

Suppose a firm is collecting $1,700 in total revenues and the total costs of its variable factors of production are $1,900 at its current level of output.One can predict that the firm will

A) shut down.
B) raise its price.
C) earn a loss.
D) continue to operate.

Question 65

The shutdown condition applies

A) in the long run and in the short run.
B) only in the short run.
C) only to firms that are just breaking even.
D) to all firms,all the time.

Question 66

Acme Dynamite has $2000 of variable costs and $500 of fixed costs when its output is 250 units.It sells each unit for $25.
Average variable cost is _____ and average total cost is _______ at this output level.

A) $8;2
B) $10;10
C) $10;2
D) $8;10

Question 67

Suppose a firm is collecting $1,250 in total revenues and the total costs of its variable factors of production are $1,000 at its current level of output.The firm has $500 in fixed costs.In the short run,one can predict that the firm will ____ and in the long run the firm will _____.

A) shut down;reopen for business
B) earn a profit;earn a loss
C) earn a loss;earn a profit
D) continue to operate;exit the industry

Question 68

Suppose a firm is collecting $1,999 in total revenues and the total cost of its fixed factors of production falls from $500 to $400.One can speculate that the firm will:

A) expand output.
B) lower price.
C) earn greater profits or smaller losses.
D) contract output.

Question 69

Acme Dynamite has $2000 of variable costs and $500 of fixed costs when its output is 250 units.It sells each unit for $25.
Profit at this output level is

A) $6,250
B) $5,750
C) $4,250
D) $3,750

Question 70

In the short run,if a firm chooses to operate and produce output,it must be the case that:

A) it earns a profit.
B) it avoids a loss.
C) total revenues are greater than or equal to the cost of fixed factors of production.
D) total revenues are greater than or equal to the cost of variable factors of production.

Question 71

Acme Dynamite has $2000 of variable costs and $500 of fixed costs when its output is 250 units.It sells each unit for $25.
If the price of dynamite drops to $10,should Acme continue to operate in the short run?

A) No,because Price is less than Average Total Cost
B) Yes,because Price is less than Average Variable Cost
C) No,because Price is not greater than Average Total Cost
D) Yes,because Price is greater than Average Variable Cost

Question 72

Average variable cost is defined as

A) Total cost divided by output.
B) Total cost divided by number of workers.
C) Variable cost divided by output.
D) Variable cost divided by price.

Question 73

Suppose a firm is collecting $1,345 in total revenues and the total cost of its fixed factors of production rises from $200 to $300.One can speculate that the firm will:

A) expand output.
B) raise price.
C) earn greater profits or smaller losses.
D) earn smaller profits or greater losses.

Question 74

Fred runs a fishing lodge,and has a very successful business during the summer.In the fall,the number of guests at the lodge starts to decline,and by November,very few people stay at Fred's Lodge.Fred should:

A) keep the lodge open all year because his summer profits offset any losses he has in the winter.
B) keep the lodge open only during those months in which revenues exceed total costs.
C) keep the lodge open only during those months in which revenues exceed the fixed costs of the lodge.
D) keep the lodge open only during those months in which revenues exceed the variable costs of serving guests.

Question 75

In general,if the price of a variable factor of production increases:

A) total costs fall.
B) the profit maximizing level of output rises.
C) price rises.
D) marginal costs rise.

Question 76

A profit-maximizing firm will shut down when:

A) total revenues are less than the total cost of fixed and variable factors of production.
B) total revenues are less than the cost of variable factors of production.
C) total revenues are less than the cost of fixed factors of production.
D) profits are zero.

Question 77

Average total cost is defined as

A) Total cost divided by output.
B) Total cost divided by price.
C) Variable cost divided by output.
D) Variable cost divided by price.

Question 78

If a firm shuts down in the short run,then:

A) total revenue and total cost will fall to zero.
B) profit will equal zero.
C) profit will equal negative fixed costs.
D) profit will equal negative variable costs.

Question 79

In general,if the price of a fixed factor of production increases:

A) price rises.
B) marginal costs are unchanged.
C) marginal costs increase.
D) the profit maximizing level of output falls.

Question 80

If a firm is earning zero profits

A) its revenues are sufficient to pay explicit costs,but not implicit costs.
B) the owner will not be able to pay himself or herself a salary.
C) it will shut down in the long run,but will continue to operate in the short run.
D) the owners are earning a return on their time and investment that is equal to the opportunity costs of that time and investment.