Question 1

Bubba's Bait and Tackle is maximizing profits, so it must be producing where

Accepted Answer

A)  MR > MC. 
B)  MR < MC. 
C)  MR = MC. 
D)  MR = 0.

Question 2

________ are likely a fixed cost of a firm.

Accepted Answer

A)  Wages paid to employees 
B)  The payments for supplies 
C)  Lease payments for office space 
D)  Travel expenses to meet with clients

Question 3

As output rises, ________ will continue to fall.

Accepted Answer

A)  average variable costs 
B)  average total costs 
C)  average fixed costs 
D)  marginal costs

Question 4

Refer to the short-run information provided in Figure 8.5 below to answer the question(s) that follow.  Figure 8.5
-Refer to Figure 8.5. If seven drones are produced, average variable costs are

Accepted Answer

A)  $2.86. 
B)  $14.29. 
C)  $20. 
D)  $21.43.

Question 5

Average fixed costs

Accepted Answer

A)  are the costs associated with producing an additional unit of output. 
B)  provide a per unit measure of costs. 
C)  fall as output rises. 
D)  reach their minimum at the output level where the average fixed cost curve is intersected by the marginal cost curve.

Question 6

The profit-maximizing level for all firms in ________ is the output level where MC = MR.

Accepted Answer

A)  only perfectly competitive industries 
B)  only monopoly industries 
C)  only large industries 
D)  any industry

Question 7

Refer to the information provided in Figure 8.4 below to answer the question(s) that follow.  Figure 8.4
-Refer to Figure 8.4. If twelve microwave ovens are produced, Micro Oven's total fixed costs are

Accepted Answer

A)  $25. 
B)  $41.67. 
C)  $50. 
D)  $66.67.

Question 8

Refer to the information provided in Figure 8.6 below to answer the question(s) that follow.  Figure 8.6
-Refer to Figure 8.6. Average variable cost is represented by

Accepted Answer

A)  curve 1. 
B)  curve 2. 
C)  curve 3. 
D)  line segment AB.

Question 9

Refer to the information provided in Figure 8.9 below to answer the question(s) that follow.  Figure 8.9
-Refer to Figure 8.9. If this farmer is producing the profit-maximizing level of output, her profit is

Accepted Answer

A)  $0. 
B)  $1,000. 
C)  $2,000. 
D)  $3,000.

Question 10

If a firm in a perfectly competitive industry raises its price above market price

Accepted Answer

A)  total revenue for the firm will increase. 
B)  profit will increase. 
C)  sales will drop to zero. 
D)  demand curves will become downward sloping.

Question 11

The increase in total cost resulting from producing one more unit of output. is called

Accepted Answer

A)  marginal cost. 
B)  average total cost. 
C)  variable cost. 
D)  opportunity cost.

Question 12

At a particular level of output, the difference between average total cost and average fixed cost is average variable cost.

Accepted Answer

A) True 
 B)False

Question 13

Refer to the information provided in Figure 8.4 below to answer the question(s) that follow.  Figure 8.4
-Refer to Figure 8.4. Micro Oven's average fixed costs of producing nine units of output are

Accepted Answer

A)  $25. 
B)  $33.33. 
C)  $55.55. 
D)  indeterminate from this information.

Question 14

The Lawn Ranger, a landscaping company, has total costs of $5,000 and total fixed costs of $3,000. The Lawn Ranger's total variable costs are

Accepted Answer

A)  $2,000. 
B)  $3,000. 
C)  $5,000. 
D)  indeterminate because the firm's output level is not known.

Question 15

Refer to the information provided in Figure 8.11 below to answer the question(s) that follow.  Figure 8.11
-Refer to the Figure 8.11. Assuming wool is a perfectly competitive industry, the demand curve faced by each wool producer is ________ starting at $3.00 per pound.

Accepted Answer

A)  downward-sloping 
B)  upward-sloping 
C)  vertical 
D)  horizontal

Question 16

The upward-sloping portion of the perfectly competitive firm's average total cost curve is the firm's short-run supply curve.

Accepted Answer

A) True 
 B)False

Question 17

Assume Robbie's Robots operates in a perfectly competitive market producing 3,000 robots per day. At this output level, the selling price is $800 per robot and the marginal cost is $625 per robot. It follows that producing one more robot will cause this firm's

Accepted Answer

A)  total cost to decrease. 
B)  profits to increase. 
C)  profits to decrease. 
D)  profits to remain unchanged.

Question 18

If there is a decrease in industry supply while the industry demand curve remains the same, then an individual firm in a perfectly competitive industry currently earning losses will see its losses ________.

Accepted Answer

A)  increase 
B)  not change 
C)  decrease 
D)  impossible to determine

Question 19

The closest example of a perfectly competitive market is

Accepted Answer

A)  fast foods. 
B)  beer. 
C)  gasoline stations. 
D)  soybeans.

Question 20

If a firm is producing where MR < MC

Accepted Answer

A)  the revenue gained by producing one more unit of output exceeds the cost incurred by doing so. 
B)  the revenue gained by producing one more unit of output equals the cost incurred by doing so. 
C)  the revenue gained by producing one more unit of output is less than the cost incurred by doing so. 
D)  the firm is already maximizing profits because revenue is being decreased by more than costs.

Exam 8: Short-Run Costs and Output Decisions