Question 1

Refer to the information provided in Figure 8.3 below to answer the questions that follow.  Figure 8.3
-Refer to Figure 8.3. The marginal cost of the 10th basketball is

Accepted Answer

A)  $2. 
B)  $3. 
C)  $3.05. 
D)  $5.80.

Question 2

Which of the following is most likely to be a variable cost for a firm?

Accepted Answer

A)  the interest payments made on loans 
B)  the franchiser's fee that a restaurant must pay to the national restaurant chain 
C)  the monthly rent on office space that it leased for a year 
D)  the payroll taxes that are paid on employee wages

Question 3

Corn is produced in a perfectly competitive market. The demand for ethanol increases. This will cause the individual corn farmer's marginal revenue to ________ and their profit maximizing level of output to ________.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 4

Total cost refers to

Accepted Answer

A)  the full economic costs of production. 
B)  the sum of average fixed cost and average variable cost. 
C)  the fixed costs of production. 
D)  the explicit costs of production.

Question 5

Jerry sells cherry sno-cones along the boardwalk in New Jersey. During the summer this is a perfectly competitive business, and Jerry faces a perfectly elastic demand curve. If he wants to try to increase revenues he should

Accepted Answer

A)  raise the price of his sno-cones to make more per sale. 
B)  lower the price of his sno-cones to try to sell more. 
C)  keep the price the same but produce more to increase sales. 
D)  do nothing; there is nothing he can do to increase revenue.

Question 6

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 7

The Framing Gallery frames posters. The Framing Gallery has total fixed costs of $500. The Framing Gallery's average variable cost is $20 and its average total cost is $25. The Framing Gallery is currently framing

Accepted Answer

A)  5 posters. 
B)  25 posters. 
C)  100 posters. 
D)  a number of posters that is indeterminate from this information.

Question 8

Perfectly competitive firms sell homogeneous products.

Accepted Answer

A) True 
 B)False

Question 9

The explanation for why marginal cost is positive and rising in the short run is ________ marginal product of labor in the production process.

Accepted Answer

A)  a zero 
B)  a constant 
C)  an increasing 
D)  a diminishing

Question 10

Assume Dell Computer Company operates in a perfectly competitive market producing 5,000 computers per day. At this output level, price equals this firm's marginal cost. To maximize profits, Dell should

Accepted Answer

A)  make no adjustments as they are already maximizing their profits. 
B)  increase their output. 
C)  decrease their output. 
D)  stop producing since it is earning a loss.

Question 11

The formula for average fixed costs is

Accepted Answer

A)  TFC - q. 
B)  TFC/q. 
C)  q/TFC. 
D)  Δq/ΔTFC.

Question 12

Refer to the information provided in Table 8.1 below to answer the questions that follow.
Table 8.1 $$\begin{array} { l c c c } 
\text { Produce } & \begin{array} { c } 
\text { Using } \
\text { Techniques }
\end{array} & \begin{array} { c } 
\text { Units of Variable } \
\text { K }
\end{array} & \begin{array} { c } 
\text { Inputs } \
\text { L }
\end{array} \
\hline \text { 1 unit of output } & & & \
& \text { A } & 8 & 8 \
& \text { B } & 4 & 12 \
2 \text { units of output } & & & \
& \text { A } & 14 & 12 \
& \text { B } & 8 & 20 \
3 \text { units of output } & & & \
& \text { A } & 16 & 12 \
& \text { B } & 12 & 22
\end{array}$$
-Refer to Table 8.1. Assuming the price of labor (L) is $5 per unit and the price of capital (K) is $10 per unit, what production technique should this firm use to produce 2 units of output?

Accepted Answer

A)  Production technique A 
B)  Production technique B 
C)  The firm is indifferent between production technique A and production technique B. 
D)  It is impossible to determine if the firm should select production technique A or B because total fixed costs are not given.

Question 13

Refer to the information provided in Table 8.2 below to answer the questions that follow.
Table 8.2 $\begin{array} { c} 
Number of\
Earrings& TVC& MC &AVC& TFC& TC &AFC &ATC\
0 & & & & &100 & \ 1 & & 50 & & & \ 2 & && & & && 95 \ 3 & & & 46.67 & & \ 4 & & & & &300 & \ 5 & 270& & & & & \end{array}$
-Refer to Table 8.2. If Sherry produces five pairs of earrings, her total costs are

Accepted Answer

A)  $320. 
B)  $360. 
C)  $370. 
D)  $400.

Question 14

Refer to the information provided in Figure 8.11 below to answer the questions 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 15

The formula for AVC is

Accepted Answer

A)  q/TVC. 
B)  TVC/q. 
C)  ΔTVC/Δq. 
D)  Δq/ΔTVC.

Question 16

Related to the Economics in Practice on page 179: When considering expanding its student body, a college should

Accepted Answer

A)  compare the marginal cost of educating an additional student to the tuition that student pays. 
B)  compare the average total cost of educating an additional student to the tuition that student pays. 
C)  definitely expand because education is very important and should be made available to as many people as possible. 
D)  only consider doing so if they have sufficient housing.

Question 17

Refer to the information provided in Figure 8.4 below to answer the questions that follow.  Figure 8.4
-Refer to Figure 8.4. Average total costs will be minimized at

Accepted Answer

A)  six microwave ovens. 
B)  an output level between three and six microwave ovens. 
C)  two microwave ovens. 
D)  an output level greater than six microwave ovens.

Question 18

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

Accepted Answer

A)  $250. 
B)  $425. 
C)  $500. 
D)  indeterminate from this information.

Question 19

A market demand curve is ________.

Accepted Answer

A)  downward sloping 
B)  upward sloping 
C)  perfectly elastic 
D)  perfectly inelastic

Question 20

The closest example of a perfectly competitive market is

Accepted Answer

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

Exam 8: Short-Run Costs and Output Decisions

Refer to the information provided in Figure 8.3 below to answer the questions that follow. Figure 8.3 -Refer to Figure 8.3. The marginal cost of the 10th basketball is