ECO 2023 Micro – Exam 3

question

A basic characteristic of the short run for both a perfectly competitive firm and a monopolist is that:

answer

the firm does not have sufficient time to vary the level of all of the inputs used in the production process

question

Consider a small farm that uses machinery and laborers to grow and harvest fruits and vegetables. Which of the following best describes one of the short run variable costs?

answer

total per-period payments made to laborers

question

Consider a local bakery that rents a facility at which it bakes loafs of bread using machinery (ovens etc.) and labor. Which of the following best describes one of its fixed costs in the short run?

answer

the monthly rental payments it makes to the owner of the facility

question

The law of diminishing marginal product (or returns) states that:

answer

as more and more of a variable input, such as labor is employed to a short-run production process, beyond a point output will increase at a decreasing rate

question

The shape of which cost curves can be attributed to the law of diminishing product (or returns)?

answer

total variable cost, total cost, average variable cost, average total cost, and marginal cost

question

If the total variable cost incurred by producing 9 units of output is $90 and the total variable cost incurred by producing 10 units of output is $120, then:

answer

the average variable cost of 9 units is $10

question

All of the factors held constant, if the price of one of the firm's variable inputs decreases, such as the hourly wage rate, then:

answer

marginal cost, average variable cost and average total cost would all fall

question

Consider a short run production process in which MP^L increases initially as more and more labor is employed and then decreases beyond a point as the gains from are exhausted. It follows that:

answer

TVC will increase initially at an increasing rate and beyond a point it will increase at an increasing rate

question

A fixed cost is:

answer

any cost which does not change when the firm changes its output

question

If a technological improvement occurs in a production process, then:

answer

All the above
- A given amount of input will yield more output
- The total production curve (or short run production function) will rotate upward
- Total variable cost and average variable cost will be reduced at all possible levels of output
- a given amount of output may be produced with fewer inputs

question

A firm's total variable cost will depend upon:

answer

All of the above are correct
- the production techniques that are used
- the prices of its variable inputs
- the amount of output produced

question

Which of the following is not correct regarding a short run production process?

answer

if total production is at a maximum, the average product is also at a maximum

question

Suppose a firm's production function is Q=4K^0.5L^0.5. Its level of capital is fixed at 1 unit, the price of labor is P^L = $32 per unit, and the price of capital is P^K = $400 per unit. Given this information, its short run production function and average product of labor function may be determined. Which of the following is correct?

answer

Q = 0.4L^0.5 and AP^L = 4L^-0.5

question

answer

TFC = $400

question

Supposed a firms production function iS Q= 4K^0.5L^0.5. Its level of capital is fixed at 1 unit, the price of labor is P^L = $32 per unit, and the price of capital is P^K = $400 per unit. Given this information, its total variable cost function is:

answer

TVC = 2Q^2

question

Which of the following is not a characteristic of a perfectly competitive market?

answer

the ability for an individual firm to affect the market price

question

Which of the following is a characteristic of a perfectly competitive firm's demand curve?

answer

it is equal to the firm's marginal revenue and average revenue costs

question

Consider a profit maximizing firm operating in a perfectly competitive industry. If the equilibrium market price of the good falls below the firm's average total cost curve but is greater than the minimum of its average variable cost curve, the firm:

answer

will experience a lost but should continue to operate in the short-run

question

Consider a perfectly competitive firm that sells all units of its output for the market price. The total revenue generated by the firm:

answer

- increases by a constant amount as the quality of output produced and sold increases
- appears graphically as an upward sloping straight line from the origin

question

The principle that a firm should produce up to the point where marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing the extra unit is known as the:

answer

profit maximization rule

question

If a competitive firm's total output increases as the quantity of labor that it employs increases, then the:

answer

marginal product of labor could be increasing or decreasing

question

Suppose a perfectly competitive firm produces and sells 15 units of output per-period for the market price of $8. If its average fixed costs are $2 and its average variable costs are $, the the firm:

answer

earns a per-period total profit of $45

question

If a firm is producing and selling a level of output that maximizes total profit, then it will be:

answer

maximizing the difference between total revenue and total cost

question

Under which of the following situations would a perfectly competitive firm increase its per-period profits by increasing output:

answer

if it were producing a level of output such that MC < MR

question

A firm that is confronted with fixed costs in the short run should produce versus shut down if the total revenue generated from the sales of its output is sufficient to cover its:

answer

total variable costs

question

Suppose that at 500 units of output a firm is producing such that marginal revenue is equal to marginal cost. The firm is selling its output at $6 per unit and average total cost at 500 units of output is $5. Given this information we:

answer

can conclude that the firm is maximizing profit in the short run

question

If production is occurring where price exceeds marginal cost, the purely competitive market will:

answer

fail to maximize profits and inputs will be underallocated to the production of the good

question

If a competitive firm or a monopolist is producing at a level of output such that P < ATC, it may be concluded that:

answer

it will be incurring a loss

question

Suppose a firm is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $6 per unit and average total costs of $7 per unit. Given this information, it may be concluded that the firm:

answer

is operating at maximum total profit

question

If the monopolist is producing and selling at a level of output in the inelastic segment of its demand curve, it can:

answer

All the above
- raise total revenue by raising price
- reduce total costs by raising price
- raise profits by raising price

question

A perfectly competitive firm's average fixed cost function is AFC = 20/Q, its average variable cost function is AVC = 2 + 0.2Q, and its marginal cost function is MC = 2 + 0.4Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the market price of the good is P = $6, then the firm will:

answer

produce 10 units of output and earn a profit of $0

question

Consider a monopolist that employs a uniform pricing strategy, whereby all units are sold of the same price. The price that will yield the firm the maximum total profit is:

answer

the price at which marginal revenue equals marginal cost

question

answer

produce 0 units of output ( shut down) and suffer a loss of $20

question

The price that a profit maximizing monopolist charges for its products is:

answer

greater than the price that would prevail if the industry were perfectly competitive

question

Suppose the firm is compromising the supply-side of a perfectly competitive market are earning economic profits, creating the incentive for new firms to enter the market and compete. Which of the flooding best describes the effect on the market resulting from the entry of new firms?

answer

the market supply increases, causing price to decrease and the total output produced and sold to increase

question

Similar to a firm operating in a perfectly competitive industry, a monopolist that chooses to produce in the short-run:

answer

may incur losses

question

For a purely competitive firm ____________, and for a uniform price monopolist _____________:

answer

P = MR = AR , P = AR >MR

question

If a profit maximizing monopolist is producing a level of output such that marginal cost is $4 and its marginal revenue is $8, it will increase its profits by:

answer

reducing price and increasing output

question

Consider a monopolist whose total cost function is TC = 30 + 2Q + 0.5Q^2 and those marginal cost function is MC = 2 + Q. The demand function for the firms good is P = 110 - 0.25Q. The firm optimizes by producing the level of output that maximizes total profit or minimizes total loss. If the firm uses a uniform pricing strategy, the rounded to the nearest unit and nearest dollar, the firm will:

answer

produce 72 units of output, charge a price of $92, and earn of profit of $3858

question

A 'natural' monopoly, such as a local electricity provider, is the result of:

answer

- long-run average total costs declining continuously as output increases
- economies of scale existing over a wide range of output

question

A patent or copyright is a barrier to entry based on:

answer

government action to encourage and protect private research and development efforts

question

In contrast to a perfectly competitive firm, the demand curve faced by a monopoly is:

answer

less elastic at all levels of output

1 of 42

question

A basic characteristic of the short run for both a perfectly competitive firm and a monopolist is that:

answer

the firm does not have sufficient time to vary the level of all of the inputs used in the production process

question

Consider a small farm that uses machinery and laborers to grow and harvest fruits and vegetables. Which of the following best describes one of the short run variable costs?

answer

total per-period payments made to laborers

question

Consider a local bakery that rents a facility at which it bakes loafs of bread using machinery (ovens etc.) and labor. Which of the following best describes one of its fixed costs in the short run?

answer

the monthly rental payments it makes to the owner of the facility

question

The law of diminishing marginal product (or returns) states that:

answer

as more and more of a variable input, such as labor is employed to a short-run production process, beyond a point output will increase at a decreasing rate

question

The shape of which cost curves can be attributed to the law of diminishing product (or returns)?

answer

total variable cost, total cost, average variable cost, average total cost, and marginal cost

question

If the total variable cost incurred by producing 9 units of output is $90 and the total variable cost incurred by producing 10 units of output is $120, then:

answer

the average variable cost of 9 units is $10

question

All of the factors held constant, if the price of one of the firm's variable inputs decreases, such as the hourly wage rate, then:

answer

marginal cost, average variable cost and average total cost would all fall

question

Consider a short run production process in which MP^L increases initially as more and more labor is employed and then decreases beyond a point as the gains from are exhausted. It follows that:

answer

TVC will increase initially at an increasing rate and beyond a point it will increase at an increasing rate

question

A fixed cost is:

answer

any cost which does not change when the firm changes its output

question

If a technological improvement occurs in a production process, then:

answer

question

A firm's total variable cost will depend upon:

answer

All of the above are correct
- the production techniques that are used
- the prices of its variable inputs
- the amount of output produced

question

Which of the following is not correct regarding a short run production process?

answer

if total production is at a maximum, the average product is also at a maximum

question

answer

Q = 0.4L^0.5 and AP^L = 4L^-0.5

question

answer

TFC = $400

question

answer

TVC = 2Q^2

question

Which of the following is not a characteristic of a perfectly competitive market?

answer

the ability for an individual firm to affect the market price

question

Which of the following is a characteristic of a perfectly competitive firm's demand curve?

answer

it is equal to the firm's marginal revenue and average revenue costs

question

answer

will experience a lost but should continue to operate in the short-run

question

Consider a perfectly competitive firm that sells all units of its output for the market price. The total revenue generated by the firm:

answer

- increases by a constant amount as the quality of output produced and sold increases
- appears graphically as an upward sloping straight line from the origin

question

The principle that a firm should produce up to the point where marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing the extra unit is known as the:

answer

profit maximization rule

question

If a competitive firm's total output increases as the quantity of labor that it employs increases, then the:

answer

marginal product of labor could be increasing or decreasing

question

Suppose a perfectly competitive firm produces and sells 15 units of output per-period for the market price of $8. If its average fixed costs are $2 and its average variable costs are $, the the firm:

answer

earns a per-period total profit of $45

question

If a firm is producing and selling a level of output that maximizes total profit, then it will be:

answer

maximizing the difference between total revenue and total cost

question

Under which of the following situations would a perfectly competitive firm increase its per-period profits by increasing output:

answer

if it were producing a level of output such that MC < MR

question

A firm that is confronted with fixed costs in the short run should produce versus shut down if the total revenue generated from the sales of its output is sufficient to cover its:

answer

total variable costs

question

answer

can conclude that the firm is maximizing profit in the short run

question

If production is occurring where price exceeds marginal cost, the purely competitive market will:

answer

fail to maximize profits and inputs will be underallocated to the production of the good

question

If a competitive firm or a monopolist is producing at a level of output such that P < ATC, it may be concluded that:

answer

it will be incurring a loss

question

answer

is operating at maximum total profit

question

If the monopolist is producing and selling at a level of output in the inelastic segment of its demand curve, it can:

answer

All the above
- raise total revenue by raising price
- reduce total costs by raising price
- raise profits by raising price

question

answer

produce 10 units of output and earn a profit of $0

question

Consider a monopolist that employs a uniform pricing strategy, whereby all units are sold of the same price. The price that will yield the firm the maximum total profit is:

answer

the price at which marginal revenue equals marginal cost

question

answer

produce 0 units of output ( shut down) and suffer a loss of $20

question

The price that a profit maximizing monopolist charges for its products is:

answer

greater than the price that would prevail if the industry were perfectly competitive

question

answer

the market supply increases, causing price to decrease and the total output produced and sold to increase

question

Similar to a firm operating in a perfectly competitive industry, a monopolist that chooses to produce in the short-run:

answer

may incur losses

question

For a purely competitive firm ____________, and for a uniform price monopolist _____________:

answer

P = MR = AR , P = AR >MR

question

If a profit maximizing monopolist is producing a level of output such that marginal cost is $4 and its marginal revenue is $8, it will increase its profits by:

answer

reducing price and increasing output

question

answer

produce 72 units of output, charge a price of $92, and earn of profit of $3858

question

A 'natural' monopoly, such as a local electricity provider, is the result of:

answer

- long-run average total costs declining continuously as output increases
- economies of scale existing over a wide range of output

question

A patent or copyright is a barrier to entry based on:

answer

government action to encourage and protect private research and development efforts

question

In contrast to a perfectly competitive firm, the demand curve faced by a monopoly is:

answer

less elastic at all levels of output

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ECO 2023 Micro – Exam 3

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