Exam 3

question

In economics, the difference between the short run and the long run is that:

answer

in the short run at least one input is fixed whereas in the long run no inputs are fixed

question

{scalc} 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

Consider a firms per-period (e.g., hourly) production process. If it employs 1 unit of labor, then 6 units of output will be produced; if it employs 2 units of labor, then 10 units of output will be produced; and if it employs 3 units of labor, then 12 units of output will be produced. It follows that:

answer

total output is increasing at a decreasing rate and the marginal product of labor is decreasing

question

Suppose a local bakery rents a facility at which it bakes loaves of bread using machinery and labor. Which of the following best describes one of its short run variable inputs?

answer

the baking supplies (e.g., flour, eggs, salt, etc.)

question

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

answer

All the above/below:

1. a given amount of inputs will yield more output

2. the total product curve (or short run production function) will rotate upward

3. total variable cost and average variable cost will be reduced at all positive levels of output

4. a given amount of output may be produced with fewer inputs

question

The marginal product of labor is:

answer

the change in total output attributed to employing an additional worker

question

If a firms management permits its laborers to shirk and its laborers choose to do so, then:

answer

i. the level of output produced per period will be less than the level of output if laborers do not shirk

ii. more time will be required to produce a given level of output than if laborers do not shirk

iii. the total labor costs required to produce a given level of output will be greater than if laborers do not shirk but total fixed costs will be unaffected

question

Which of the following is correct regarding the relationship between the marginal product of labor (MPL) and the average product of labor (APL)?

answer

i. if MPL is greater than APL, then APL will be increasing

ii. if MPL is less than APL, then APL will be decreasing

question

A fixed cost is:

answer

any cost which does not change when the firm changes the amount of output it produces

question

A firms marginal cost of production is the:

answer

i. change in total variable cost that results from producing each additional unit of output

ii. change in total cost that results from producing each additional unit of output

question

If a firms total fixed costs increase, then:

answer

average fixed costs and average total costs will rise

question

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

answer

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

question

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

answer

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

question

Suppose a firms production function is Q = 0.4K0.5 L0.5. Its level of capital is fixed at 100 units, the price of labor is PL = $4 per unit, and the price of capital is PK = $8 per unit. Given this information, the firms short run production function is:

answer

Q = 4L^0.5

question

Suppose a firms production function is Q = 0.4K^0.5 L^0.5. Its level of capital is fixed at 100 units, the price of labor is PL = $4 per unit, and the price of capital is PK = $8 per unit. Given this information, the firms total cost function is:

answer

TC = 800 + Q^2/4

question

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

answer

the ability of an individual firm to affect the market price

question

The total revenue generated by a perfectly competitive firm:

answer

i. appears graphically as an upward sloping straight line from the origin

ii. increases by a constant amount as the quantity of output produced and sold increases

question

Consider a perfectly competitive firm 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 $4 per unit and average total costs of $6 per unit. Given this information, it may be concluded that the firm:

answer

is operating at maximum total profit

question

If a firm wants to know how much it would save if it were to reduce the level of output it produces, it will evaluate its:

answer

marginal cost function

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

The rule of producing output to the point MR = MC in order to maximize total profit or minimize total operating losses applies:

answer

to both perfectly competitive firms and monopolies

question

If a firm is producing at a break-even point, then:

answer

i. average total cost is equal to average revenue

ii. total cost is equal to total revenue

question

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing:

answer

price and minimum average variable cost

question

The market demand curve for a good that is produced and traded in a perfectly competitive industry is ___________, while the demand curve for a single competitive firms good ___________.

answer

downward sloping, perfectly elastic

question

For a purely competitive firm _______________; and for a uniform-price monopolist _______________ :

answer

P = MR = AR; P = AR > MR

question

A perfectly competitive firms average fixed cost function is AFC = 30/Q, its average variable cost function is AVC = 6 + 0.1Q, and it marginal cost function is MC = 6 + 0.2Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the market price of the good is P = $12, then the firm will:

answer

produce 30 units of output and earn a total profit of $60

question

Suppose the firms comprising 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 following 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

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

answer

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

question

The principle that a firm should produce up to the point where the 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 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 total profits by increasing output:

answer

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

question

What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?

answer

They are all barriers to entry:

1. they all help explain why a monopolists demand and marginal revenue curves are identical

2. they must all be present before a monopolist may practice price discrimination

3. they all help explain why a firms short run average total cost curve is U-shaped

question

In contrast to a perfectly competitive firm, the demand curve for a monopolists good is:

answer

less elastic at all levels of output

question

Suppose the demand for a monopolists good is described by the demand function P = 100 - 2Q. It follows that the monopolists total revenue function relating the total revenues (TR) to the quantity sold (Q) is:

answer

TR = 100Q - 2Q^2

question

Suppose the demand for a monopolists good is described by the demand function P = 100 - 0.5Q. It follows that the monopolists total revenue function relating the total revenues (TR) to the quantity sold (Q) is:

answer

TR = 100Q - 0.5Q^2

question

Which of the following is not correct regarding the behavior of monopolies in the marketplace?

answer

1. because of their market power they charge the highest price possible

2. They sell their output at prices that maximize per-unit profits instead of total profits

3. Because of their market power they are guaranteed to earn economic profits

all of the above

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

Consider a monopolist that employs a uniform pricing strategy, whereby all units are sold for 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

If a monopoly produces and sells a quantity of output (Q) for a price per unit (P) that is equal to average total cost (ATC), then:

answer

it will earn zero profit

question

If a profit maximizing monopolist is producing a level of output such that marginal cost is $8 and its marginal revenue is $12, it will increase its profits by:

answer

reducing price and increasing output

question

Suppose a monopoly 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 $12 per unit and is incurring average variable costs of $14 per unit and average total costs of $16 per unit. Given this information, it may be concluded that the firm:

answer

is operating at a loss that could be reduced by shutting down

question

Consider a monopoly whose total cost function is TC = 40 + 4Q + Q^2 and whose marginal cost function is MC = 4 + 2Q. The demand function for the firms good is P = 160 - 0.5Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the firm uses a uniform pricing strategy, then the firm will:

answer

produce 52 units of output, charge a price of $134, and earn a profit of $4016

1 of 42

question

In economics, the difference between the short run and the long run is that:

answer

in the short run at least one input is fixed whereas in the long run no inputs are fixed

question

{scalc} 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

answer

total output is increasing at a decreasing rate and the marginal product of labor is decreasing

question

Suppose a local bakery rents a facility at which it bakes loaves of bread using machinery and labor. Which of the following best describes one of its short run variable inputs?

answer

the baking supplies (e.g., flour, eggs, salt, etc.)

question

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

answer

question

The marginal product of labor is:

answer

the change in total output attributed to employing an additional worker

question

If a firms management permits its laborers to shirk and its laborers choose to do so, then:

answer

question

Which of the following is correct regarding the relationship between the marginal product of labor (MPL) and the average product of labor (APL)?

answer

i. if MPL is greater than APL, then APL will be increasing

ii. if MPL is less than APL, then APL will be decreasing

question

A fixed cost is:

answer

any cost which does not change when the firm changes the amount of output it produces

question

A firms marginal cost of production is the:

answer

i. change in total variable cost that results from producing each additional unit of output

ii. change in total cost that results from producing each additional unit of output

question

If a firms total fixed costs increase, then:

answer

average fixed costs and average total costs will rise

question

answer

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

question

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

answer

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

question

answer

Q = 4L^0.5

question

answer

TC = 800 + Q^2/4

question

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

answer

the ability of an individual firm to affect the market price

question

The total revenue generated by a perfectly competitive firm:

answer

i. appears graphically as an upward sloping straight line from the origin

ii. increases by a constant amount as the quantity of output produced and sold increases

question

answer

is operating at maximum total profit

question

If a firm wants to know how much it would save if it were to reduce the level of output it produces, it will evaluate its:

answer

marginal cost function

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

The rule of producing output to the point MR = MC in order to maximize total profit or minimize total operating losses applies:

answer

to both perfectly competitive firms and monopolies

question

If a firm is producing at a break-even point, then:

answer

i. average total cost is equal to average revenue

ii. total cost is equal to total revenue

question

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing:

answer

price and minimum average variable cost

question

The market demand curve for a good that is produced and traded in a perfectly competitive industry is ___________, while the demand curve for a single competitive firms good ___________.

answer

downward sloping, perfectly elastic

question

For a purely competitive firm _______________; and for a uniform-price monopolist _______________ :

answer

P = MR = AR; P = AR > MR

question

answer

produce 30 units of output and earn a total profit of $60

question

answer

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

question

answer

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

question

The principle that a firm should produce up to the point where the 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 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 total profits by increasing output:

answer

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

question

What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?

answer

question

In contrast to a perfectly competitive firm, the demand curve for a monopolists good is:

answer

less elastic at all levels of output

question

answer

TR = 100Q - 2Q^2

question

answer

TR = 100Q - 0.5Q^2

question

Which of the following is not correct regarding the behavior of monopolies in the marketplace?

answer

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

Consider a monopolist that employs a uniform pricing strategy, whereby all units are sold for 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

If a monopoly produces and sells a quantity of output (Q) for a price per unit (P) that is equal to average total cost (ATC), then:

answer

it will earn zero profit

question

If a profit maximizing monopolist is producing a level of output such that marginal cost is $8 and its marginal revenue is $12, it will increase its profits by:

answer

reducing price and increasing output

question

answer

is operating at a loss that could be reduced by shutting down

question

answer

produce 52 units of output, charge a price of $134, and earn a profit of $4016

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Exam 3

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