ECON 2102 Exam #2

question

A production function shows

answer

How a firm's production changes as quantity of labor and other inputs changes.

question

A production function shows the

answer

Maximum output that can be produced with varying combinations of factor inputs.

question

The period in which at least one input is fixed in quantity is the

answer

Short run.

question

The short-run production function shows how output changes when

answer

The quantity of labor changes.

question

The marginal physical product is the

answer

Change in total output associated with one additional unit of the variable input.

question

If a firm could hire all the workers it wanted at a zero wage (i.e., the workers are volunteers), the firm should hire

answer

Enough workers to produce where the MPP equals zero.

question

The change in total output associated with one additional unit of input is the

answer

Marginal physical product.

question

Diminishing returns occur because

answer

A firm increases the amount of a variable input without changing a fixed input.

question

In the short run, the law of diminishing returns

answer

Can be observed in every production process.

question

Which of the following is the best explanation of why the law of diminishing returns does not apply in the long run?

answer

In the long run, firms can increase the availability of space and equipment to keep up with the increase in variable inputs.

question

If an additional unit of labor costs $20 and has a MPP of 15 units of output, the marginal cost is

answer

$1.33.

question

If the marginal physical product (MPP) is falling, then the

answer

Marginal cost of each unit of output is rising.

question

Marginal cost

answer

Rises as a direct result of diminishing returns.

question

Which of the following costs do not change when output changes in the short run?
In the short run, when a firm produces zero output, total cost equals

answer

Fixed costs.

question

Marginal cost is equal to

answer

The change in total costs divided by the change in quantity produced.

question

At any given rate of output, the difference between total cost and fixed cost is
Changes in short-run total costs result from changes in

answer

Variable cost.

question

The marginal cost curve intersects the minimum of the curve representing

answer

ATC.

question

Average total cost is important to a business because

answer

It tells the firm what the profit per unit produced is.

question

If the marginal cost curve is rising, which of the following must be true?

answer

Total costs must be rising.

question

A U-shaped average total cost curve implies

answer

First marginal cost below average total cost, and then marginal cost above average total cost.

question

The average fixed cost (AFC) curve

answer

Declines as long as output increases.

question

Accounting costs and economic costs differ because

answer

Economic costs include implicit costs and accounting costs do not.
Economic costs include the opportunity costs of all resources used, while accounting costs include actual dollar outlays.

question

Economic cost

answer

Includes both implicit and explicit costs.

question

Which of the following statements about the relationship between economic costs and accounting costs is true?

answer

Accounting costs are always less than or equal to economic costs.

question

The most desirable rate of output for a firm is the output that

answer

Maximizes total profit.

question

A firm that makes zero economic profits

answer

Covers all its costs, including a provision for normal profit.

question

Normal profit

answer

Covers the full opportunity cost of the resources used by the firm.

question

Normal profit implies that

answer

The factors employed are earning as much as they could in the best alternative employment.

question

Which of the following should not be included when calculating accounting profit?

answer

The return on the next best alternative investment opportunity.

question

Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What is the accounting profit for the firm described above?

answer

$0.

question

answer

-$90,000.

question

Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. To receive a normal profit, the firm described above would have to

answer

Receive $90,000 more in revenue.

question

Market structure is determined by the

answer

Number and relative size of the firms in an industry.

question

The perfectly competitive market structure includes all of the following except

answer

Large advertising budgets.

question

Perfect competition is a situation in which

answer

There are many firms and no buyer or seller has market power.

question

When a producer can control the market price for the good it sells, the producer
If a firm can change market prices by altering its output, then it

answer

Has market power.

question

In which of the following types of markets does a single firm have the most market power?

answer

Monopoly.

question

A competitive firm

answer

Is a price taker.

question

If the equilibrium price in a perfectly competitive market for walnuts is $4.99 per pound, then an individual firm in this market can

answer

Sell an additional pound of walnuts at $4.99.

question

The demand curve confronting a competitive firm is

answer

Horizontal, while market demand is downward-sloping.

question

For the perfectly competitive firm, the marginal revenue is always

answer

Constant.

question

For perfectly competitive firms, price

answer

Is equal to marginal revenue.

question

Short-run profits are maximized at the rate of output where

answer

Marginal revenue is equal to marginal cost.

question

A perfectly competitive firm will maximize profits by choosing an output level where

answer

Price equals marginal cost.

question

A perfectly competitive firm should expand output when

answer

P > MC.

question

If price is greater than marginal cost, a perfectly competitive firm should increase output because

answer

Additional units of output will add to the firm's profits (or reduce losses).

question

The marginal cost curve

answer

Is the short-run supply curve for a competitive firm at prices above the AVC curve.

question

Average total cost is equal to

answer

Total cost divided by quantity produced.

question

Which of the following is always downward-sloping?

answer

The average total cost curve when it is above the marginal cost curve.

question

The average variable cost curve slopes upward with a higher rate of output in the short run because of

answer

The effect of diminishing returns.

question

When the average total cost curve is rising, the marginal cost curve will be

answer

Above the average total cost curve.

question

The average total cost (ATC) curve will be negatively sloped so long as

answer

Marginal cost is less than average total cost.

question

Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her costs for her.

answer

Dad says her cost is $31,000 and Mom says her cost is $47,600.

question

The period in which there are no fixed costs is the

answer

Long run.

question

The long-run average total cost curve is constructed from the

answer

Lowest average total cost for producing each level of output.

question

Economies of scale are reductions in average

answer

Total cost that result from using operations of larger size.

question

Assume a given amount of output can be produced by several small plants or one large plant with identical minimum per-unit costs. This long-run situation reflects the existence of

answer

Constant returns to scale.

question

When the size of a factory (and all its associated inputs) doubles and, as a result, output more than doubles,

answer

Economies of scale must exist.

question

Economies of scale

answer

Explain why average total costs decline as output increases in the long run.

question

Diseconomies of scale are reflected in

answer

The upward-sloping segment of the long-run average total cost curve.

question

Explicit costs

answer

Are the sum of actual monetary payments made for resources used to produce a good.

question

Implicit costs

answer

Are the costs to produce a good or service for which no direct payment is made.

question

Economic profit is

answer

Less than accounting profit by the amount of implicit cost.

question

Competitive firms cannot individually affect market price because

answer

Their individual production is insignificant relative to the production of the industry.

question

Which of the following characterizes a competitive market?

answer

A downward-sloping demand curve for the market.

question

The demand curve for each perfectly competitive firm is

answer

Horizontal.

question

Which of the following industries is perfectly competitive?

answer

Wholesale fresh flowers.

question

The demand curve confronting a competitive firm

answer

Equals the marginal revenue curve.

question

The shutdown point occurs where price is below the minimum of

answer

AVC.

question

Suppose the cost of insecticide (a variable input) decreases for broccoli farmers. In order to maximize profits, ceteris paribus, broccoli farmers should

answer

Increase output.

question

If a perfectly competitive firm is producing at its profit-maximizing output in the short run and fixed costs decline, the firm should

answer

Not change output.

1 of 71

question

A production function shows

answer

How a firm's production changes as quantity of labor and other inputs changes.

question

A production function shows the

answer

Maximum output that can be produced with varying combinations of factor inputs.

question

The period in which at least one input is fixed in quantity is the

answer

Short run.

question

The short-run production function shows how output changes when

answer

The quantity of labor changes.

question

The marginal physical product is the

answer

Change in total output associated with one additional unit of the variable input.

question

If a firm could hire all the workers it wanted at a zero wage (i.e., the workers are volunteers), the firm should hire

answer

Enough workers to produce where the MPP equals zero.

question

The change in total output associated with one additional unit of input is the

answer

Marginal physical product.

question

Diminishing returns occur because

answer

A firm increases the amount of a variable input without changing a fixed input.

question

In the short run, the law of diminishing returns

answer

Can be observed in every production process.

question

Which of the following is the best explanation of why the law of diminishing returns does not apply in the long run?

answer

In the long run, firms can increase the availability of space and equipment to keep up with the increase in variable inputs.

question

If an additional unit of labor costs $20 and has a MPP of 15 units of output, the marginal cost is

answer

$1.33.

question

If the marginal physical product (MPP) is falling, then the

answer

Marginal cost of each unit of output is rising.

question

Marginal cost

answer

Rises as a direct result of diminishing returns.

question

Which of the following costs do not change when output changes in the short run?
In the short run, when a firm produces zero output, total cost equals

answer

Fixed costs.

question

Marginal cost is equal to

answer

The change in total costs divided by the change in quantity produced.

question

At any given rate of output, the difference between total cost and fixed cost is
Changes in short-run total costs result from changes in

answer

Variable cost.

question

The marginal cost curve intersects the minimum of the curve representing

answer

ATC.

question

Average total cost is important to a business because

answer

It tells the firm what the profit per unit produced is.

question

If the marginal cost curve is rising, which of the following must be true?

answer

Total costs must be rising.

question

A U-shaped average total cost curve implies

answer

First marginal cost below average total cost, and then marginal cost above average total cost.

question

The average fixed cost (AFC) curve

answer

Declines as long as output increases.

question

Accounting costs and economic costs differ because

answer

Economic costs include implicit costs and accounting costs do not.
Economic costs include the opportunity costs of all resources used, while accounting costs include actual dollar outlays.

question

Economic cost

answer

Includes both implicit and explicit costs.

question

Which of the following statements about the relationship between economic costs and accounting costs is true?

answer

Accounting costs are always less than or equal to economic costs.

question

The most desirable rate of output for a firm is the output that

answer

Maximizes total profit.

question

A firm that makes zero economic profits

answer

Covers all its costs, including a provision for normal profit.

question

Normal profit

answer

Covers the full opportunity cost of the resources used by the firm.

question

Normal profit implies that

answer

The factors employed are earning as much as they could in the best alternative employment.

question

Which of the following should not be included when calculating accounting profit?

answer

The return on the next best alternative investment opportunity.

question

answer

$0.

question

answer

-$90,000.

question

Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. To receive a normal profit, the firm described above would have to

answer

Receive $90,000 more in revenue.

question

Market structure is determined by the

answer

Number and relative size of the firms in an industry.

question

The perfectly competitive market structure includes all of the following except

answer

Large advertising budgets.

question

Perfect competition is a situation in which

answer

There are many firms and no buyer or seller has market power.

question

When a producer can control the market price for the good it sells, the producer
If a firm can change market prices by altering its output, then it

answer

Has market power.

question

In which of the following types of markets does a single firm have the most market power?

answer

Monopoly.

question

A competitive firm

answer

Is a price taker.

question

If the equilibrium price in a perfectly competitive market for walnuts is $4.99 per pound, then an individual firm in this market can

answer

Sell an additional pound of walnuts at $4.99.

question

The demand curve confronting a competitive firm is

answer

Horizontal, while market demand is downward-sloping.

question

For the perfectly competitive firm, the marginal revenue is always

answer

Constant.

question

For perfectly competitive firms, price

answer

Is equal to marginal revenue.

question

Short-run profits are maximized at the rate of output where

answer

Marginal revenue is equal to marginal cost.

question

A perfectly competitive firm will maximize profits by choosing an output level where

answer

Price equals marginal cost.

question

A perfectly competitive firm should expand output when

answer

P > MC.

question

If price is greater than marginal cost, a perfectly competitive firm should increase output because

answer

Additional units of output will add to the firm's profits (or reduce losses).

question

The marginal cost curve

answer

Is the short-run supply curve for a competitive firm at prices above the AVC curve.

question

Average total cost is equal to

answer

Total cost divided by quantity produced.

question

Which of the following is always downward-sloping?

answer

The average total cost curve when it is above the marginal cost curve.

question

The average variable cost curve slopes upward with a higher rate of output in the short run because of

answer

The effect of diminishing returns.

question

When the average total cost curve is rising, the marginal cost curve will be

answer

Above the average total cost curve.

question

The average total cost (ATC) curve will be negatively sloped so long as

answer

Marginal cost is less than average total cost.

question

answer

Dad says her cost is $31,000 and Mom says her cost is $47,600.

question

The period in which there are no fixed costs is the

answer

Long run.

question

The long-run average total cost curve is constructed from the

answer

Lowest average total cost for producing each level of output.

question

Economies of scale are reductions in average

answer

Total cost that result from using operations of larger size.

question

Assume a given amount of output can be produced by several small plants or one large plant with identical minimum per-unit costs. This long-run situation reflects the existence of

answer

Constant returns to scale.

question

When the size of a factory (and all its associated inputs) doubles and, as a result, output more than doubles,

answer

Economies of scale must exist.

question

Economies of scale

answer

Explain why average total costs decline as output increases in the long run.

question

Diseconomies of scale are reflected in

answer

The upward-sloping segment of the long-run average total cost curve.

question

Explicit costs

answer

Are the sum of actual monetary payments made for resources used to produce a good.

question

Implicit costs

answer

Are the costs to produce a good or service for which no direct payment is made.

question

Economic profit is

answer

Less than accounting profit by the amount of implicit cost.

question

Competitive firms cannot individually affect market price because

answer

Their individual production is insignificant relative to the production of the industry.

question

Which of the following characterizes a competitive market?

answer

A downward-sloping demand curve for the market.

question

The demand curve for each perfectly competitive firm is

answer

Horizontal.

question

Which of the following industries is perfectly competitive?

answer

Wholesale fresh flowers.

question

The demand curve confronting a competitive firm

answer

Equals the marginal revenue curve.

question

The shutdown point occurs where price is below the minimum of

answer

AVC.

question

Suppose the cost of insecticide (a variable input) decreases for broccoli farmers. In order to maximize profits, ceteris paribus, broccoli farmers should

answer

Increase output.

question

If a perfectly competitive firm is producing at its profit-maximizing output in the short run and fixed costs decline, the firm should

answer

Not change output.

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ECON 2102 Exam #2

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