ECON Week 5-Chapter 11

As the price of a good fluctuates, a profit-maximizing firm will expand or contract production along its:
A) average cost curve.
B) average product curve.
C) marginal cost curve.
D) marginal product curve.

(Table: Competitive Firm) Refer to the table. The profit maximizing output for this firm is:
A) 5.
B) 6.
C) 7.
D) 8.

Marcie quit her job as a preschool teacher, which paid an annual salary of $28,000, and became a street food vendor. She used $8,000 out of her savings account that paid a 4% annual interest rate to buy a street cart to sell food. In her first year of operations, she spent $10,000 on food and supplies (napkins, cups, plates, etc.) and earned total revenue of $45,000. Marcie's accounting profit is ______ and economic profit is ______.
A) $28,000; $20,000
B) $35,000; -$1,000
C) $27,000; $17,000
D) $35,000; $6,680

When opportunity cost is positive, economic profit ______ accounting profit.
A) is greater than
B) is less than
C) equals
D) eliminates

Programs such as Steam distribute more and more video games. Purchasers buy the game and download it immediately to their computer. If the entire system is automated, estimate the marginal cost of producing and selling video games this way (ignore electricity costs).
A) zero
B) the price of the game
C) proportional to the cost to make the game
D) None of the answers is correct.

(Table: Oil Production) Refer to the table. What are the fixed costs of production for this firm?
A) $34
B) $4
C) $30
D) $50

(Table: Competitive Firm 2) Refer to the table that shows the revenue and cost schedules for a competitive firm. What is the average fixed cost at the profit-maximizing quantity?
A) $54.30
B) $4.28
C) $50
D) $80

Refer to the figure. How much profit is the firm making at the profit-maximizing quantity?
A) a profit of $200
B) The firm is not making a profit—it is making a loss of $220.
C) The firm is not making a profit—it is making a loss of $200.
D) The firm is not making a profit—it is making a loss of $320.

Use the table. A firm is considering whether to enter an industry, with the conditions upon entry set forth in the table. Entering the industry would require the firm to pay $800 per day in fixed costs. This firm should ________ the industry because its profits would be ________ per day. A) not enter; -$1,350
B) not enter; -$800
C) enter; $700
D) enter; $150

An industry is said to be perfectly competitive when:
A) demand in the industry is high.
B) each firm has virtually no influence over the price of its product.
C) there are many buyers and sellers, and each is large relative to the total market.
D) supply in the industry is highly elastic.

Refer to the figure. If you are one of literally thousands of maple syrup producers and you wanted to increase your maple syrup production from 100 gallons to 110 gallons, what price would you charge?
A) $100
B) $110
C) $96
D) $10

A flat firm-level demand curve means:
A) full market pricing power.
B) limited market pricing power.
C) no market pricing power.
D) seasonal market pricing power.

A market becomes more competitive as the product becomes ______ homogeneous and there are ______ potential sellers.
A) more and more; more
B) less and less; more
C) more and more; fewer
D) less and less; fewer

If Homer operates a small bakery and sells donuts for $4/dozen, he should:
A) sell an additional dozen donuts as long as the marginal cost of producing an additional dozen donuts is less than $4.
B) sell an additional dozen donuts as long as the total cost of producing an additional dozen donuts is less than $4.
C) only sell more donuts if his total revenue is greater than his total cost.
D) sell an additional dozen donuts so long as the fixed cost of production is greater than $4.

When the level of production is relatively low, the average cost per unit of output would ________ if output increased.
A) increase
B) decrease
C) either increase or decrease depending on marginal cost
D) remain constant

The marginal revenue (MR) for a firm is a constant $45, and the firm's marginal cost (MC) is given by MC = 1.5Q (where Q is quantity of output). What is the firm's profit-maximizing level of output?
A) 67.5
B) 30
C) 45
D) 15

(Table: Competitive Firm) Refer to the table. The market price for the product is:
A) $90.
B) $80.
C) $100.
D) A dollar amount, but it cannot be determined from the information in the table.

(Table: Competitive Firm) Refer to the table. The fixed cost for this firm is:
A) $80.
B) $90.
C) $50.
D) $100.

Economic profit differs from accounting profits because of its inclusion of:
A) explicit costs.
B) incidental costs.
C) potential costs.
D) implicit costs.

(Figure: Industry Firms) Use the figures. The market for a normal good is characterized by demand curve D2 and supply curve S2. A decrease in income will cause:
A) the demand curve to shift D1 causing firms to earn economic profits. The supply curve will not change, so price will rise and firms will earn normal profits.
B) the supply curve to shift D1 causing firms to earn economic profits. The supply curve will decrease to S1 as firms exit the industry. Eventually the market price will rise and firms will earn above-normal profits.
C) the demand curve to shift D1 causing firms to earn economic losses. The supply curve will decrease to S1 as firms exit the industry. Eventually the market price will rise and firms will earn normal profits. D) the supply curve to shift S1 causing firms to earn economic losses. The demand curve will decrease to D1 as firms enter the industry. Eventually the market price will fall and firms will earn normal profits.