ECON 2102 Exam #2 - Custom Scholars
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# ECON 2102 Exam #2

question
A production function shows
How a firm's production changes as quantity of labor and other inputs changes.
question
A production function shows the
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
Short run.
question
The short-run production function shows how output changes when
The quantity of labor changes.
question
The marginal physical product is the
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
Enough workers to produce where the MPP equals zero.
question
The change in total output associated with one additional unit of input is the
Marginal physical product.
question
Diminishing returns occur because
A firm increases the amount of a variable input without changing a fixed input.
question
In the short run, the law of diminishing returns
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?
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
\$1.33.
question
If the marginal physical product (MPP) is falling, then the
Marginal cost of each unit of output is rising.
question
Marginal cost
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
Fixed costs.
question
Marginal cost is equal to
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
Variable cost.
question
The marginal cost curve intersects the minimum of the curve representing
ATC.
question
Average total cost is important to a business because
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?
Total costs must be rising.
question
A U-shaped average total cost curve implies
First marginal cost below average total cost, and then marginal cost above average total cost.
question
The average fixed cost (AFC) curve
Declines as long as output increases.
question
Accounting costs and economic costs differ because
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
Includes both implicit and explicit costs.
question
Which of the following statements about the relationship between economic costs and accounting costs is true?
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
Maximizes total profit.
question
A firm that makes zero economic profits
Covers all its costs, including a provision for normal profit.
question
Normal profit
Covers the full opportunity cost of the resources used by the firm.
question
Normal profit implies that
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?
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?
\$0.
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 economic profit for the firm described above?
-\$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
question
Market structure is determined by the
Number and relative size of the firms in an industry.
question
The perfectly competitive market structure includes all of the following except
question
Perfect competition is a situation in which
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
Has market power.
question
In which of the following types of markets does a single firm have the most market power?
Monopoly.
question
A competitive firm
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
Sell an additional pound of walnuts at \$4.99.
question
The demand curve confronting a competitive firm is
Horizontal, while market demand is downward-sloping.
question
For the perfectly competitive firm, the marginal revenue is always
Constant.
question
For perfectly competitive firms, price
Is equal to marginal revenue.
question
Short-run profits are maximized at the rate of output where
Marginal revenue is equal to marginal cost.
question
A perfectly competitive firm will maximize profits by choosing an output level where
Price equals marginal cost.
question
A perfectly competitive firm should expand output when
P > MC.
question
If price is greater than marginal cost, a perfectly competitive firm should increase output because
Additional units of output will add to the firm's profits (or reduce losses).
question
The marginal cost curve
Is the short-run supply curve for a competitive firm at prices above the AVC curve.
question
Average total cost is equal to
Total cost divided by quantity produced.
question
Which of the following is always downward-sloping?
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
The effect of diminishing returns.
question
When the average total cost curve is rising, the marginal cost curve will be
Above the average total cost curve.
question
The average total cost (ATC) curve will be negatively sloped so long as
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.
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
Long run.
question
The long-run average total cost curve is constructed from the
Lowest average total cost for producing each level of output.
question
Economies of scale are reductions in average
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
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,
Economies of scale must exist.
question
Economies of scale
Explain why average total costs decline as output increases in the long run.
question
Diseconomies of scale are reflected in
The upward-sloping segment of the long-run average total cost curve.
question
Explicit costs
Are the sum of actual monetary payments made for resources used to produce a good.
question
Implicit costs
Are the costs to produce a good or service for which no direct payment is made.
question
Economic profit is
Less than accounting profit by the amount of implicit cost.
question
Competitive firms cannot individually affect market price because
Their individual production is insignificant relative to the production of the industry.
question
Which of the following characterizes a competitive market?
A downward-sloping demand curve for the market.
question
The demand curve for each perfectly competitive firm is
Horizontal.
question
Which of the following industries is perfectly competitive?
Wholesale fresh flowers.
question
The demand curve confronting a competitive firm
Equals the marginal revenue curve.
question
The shutdown point occurs where price is below the minimum of
AVC.
question
Suppose the cost of insecticide (a variable input) decreases for broccoli farmers. In order to maximize profits, ceteris paribus, broccoli farmers should
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
Not change output.
1 of 71
question
A production function shows
How a firm's production changes as quantity of labor and other inputs changes.
question
A production function shows the
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
Short run.
question
The short-run production function shows how output changes when
The quantity of labor changes.
question
The marginal physical product is the
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
Enough workers to produce where the MPP equals zero.
question
The change in total output associated with one additional unit of input is the
Marginal physical product.
question
Diminishing returns occur because
A firm increases the amount of a variable input without changing a fixed input.
question
In the short run, the law of diminishing returns
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?
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
\$1.33.
question
If the marginal physical product (MPP) is falling, then the
Marginal cost of each unit of output is rising.
question
Marginal cost
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
Fixed costs.
question
Marginal cost is equal to
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
Variable cost.
question
The marginal cost curve intersects the minimum of the curve representing
ATC.
question
Average total cost is important to a business because
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?
Total costs must be rising.
question
A U-shaped average total cost curve implies
First marginal cost below average total cost, and then marginal cost above average total cost.
question
The average fixed cost (AFC) curve
Declines as long as output increases.
question
Accounting costs and economic costs differ because
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
Includes both implicit and explicit costs.
question
Which of the following statements about the relationship between economic costs and accounting costs is true?
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
Maximizes total profit.
question
A firm that makes zero economic profits
Covers all its costs, including a provision for normal profit.
question
Normal profit
Covers the full opportunity cost of the resources used by the firm.
question
Normal profit implies that
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?
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?
\$0.
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 economic profit for the firm described above?
-\$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
question
Market structure is determined by the
Number and relative size of the firms in an industry.
question
The perfectly competitive market structure includes all of the following except
question
Perfect competition is a situation in which
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
Has market power.
question
In which of the following types of markets does a single firm have the most market power?
Monopoly.
question
A competitive firm
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
Sell an additional pound of walnuts at \$4.99.
question
The demand curve confronting a competitive firm is
Horizontal, while market demand is downward-sloping.
question
For the perfectly competitive firm, the marginal revenue is always
Constant.
question
For perfectly competitive firms, price
Is equal to marginal revenue.
question
Short-run profits are maximized at the rate of output where
Marginal revenue is equal to marginal cost.
question
A perfectly competitive firm will maximize profits by choosing an output level where
Price equals marginal cost.
question
A perfectly competitive firm should expand output when
P > MC.
question
If price is greater than marginal cost, a perfectly competitive firm should increase output because
Additional units of output will add to the firm's profits (or reduce losses).
question
The marginal cost curve
Is the short-run supply curve for a competitive firm at prices above the AVC curve.
question
Average total cost is equal to
Total cost divided by quantity produced.
question
Which of the following is always downward-sloping?
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
The effect of diminishing returns.
question
When the average total cost curve is rising, the marginal cost curve will be
Above the average total cost curve.
question
The average total cost (ATC) curve will be negatively sloped so long as
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.
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
Long run.
question
The long-run average total cost curve is constructed from the
Lowest average total cost for producing each level of output.
question
Economies of scale are reductions in average
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
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,
Economies of scale must exist.
question
Economies of scale
Explain why average total costs decline as output increases in the long run.
question
Diseconomies of scale are reflected in
The upward-sloping segment of the long-run average total cost curve.
question
Explicit costs
Are the sum of actual monetary payments made for resources used to produce a good.
question
Implicit costs
Are the costs to produce a good or service for which no direct payment is made.
question
Economic profit is
Less than accounting profit by the amount of implicit cost.
question
Competitive firms cannot individually affect market price because
Their individual production is insignificant relative to the production of the industry.
question
Which of the following characterizes a competitive market?
A downward-sloping demand curve for the market.
question
The demand curve for each perfectly competitive firm is
Horizontal.
question
Which of the following industries is perfectly competitive?
Wholesale fresh flowers.
question
The demand curve confronting a competitive firm
Equals the marginal revenue curve.
question
The shutdown point occurs where price is below the minimum of
AVC.
question
Suppose the cost of insecticide (a variable input) decreases for broccoli farmers. In order to maximize profits, ceteris paribus, broccoli farmers should
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
Not change output.

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