MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Table 11-1

QuantityTotal Cost

(Dollars)

Variable Cost

(Dollars)

0 $1,000 $0

100 1,360 360

200 1,560 560

300 1,960 960

400 2,760 1,760

500 4,000 3,000

600 5,800 4,800

Table 11-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume thatoutput can only be increased in batches of 100 units.

1) Refer to Table 11-1. What is the fixed cost of production?A) $1,000 B) $0C) $500 D) It cannot be determined.

1)

2) Refer to Table 11-1. If the market price of each camera case is $8 and the firm maximizes profit,what is the amount of the firm s profit or loss?

A) $0 (it breaks even) B) loss of $1,000C) profit of $440 D) loss of $3200

2)

3) Refer to Table 11-1. If the market price of each camera case is $8, what is the profit-maximizingquantity?

A) 200 units B) 400 units C) 500 units D) 600 units

3)

4) Refer to Table 11-1. The firm will not produce in the short run if the output price falls belowA) $3.60 B) $6.50 C) $3.20. D) $2.80.

4)

5) A perfectly competitive industry achieves allocative efficiency becauseA) it produces where market price equals average total cost.B) goods and services are produced up to the point where the last unit provides a marginal

benefit to consumers equal to the marginal cost of producing it.C) firms carry production surpluses.D) goods and services are produced at the lowest possible cost.

5)

1

Figure 12-3

Figure 12-3 shows short run cost and demand curves for a monopolistically competitive firm in the resturaunt industry.

6) Refer to Figure 12-3.What is the area that represents the total variable cost of production?A) 0P1bQa B) 0P0aQa C) P1bdP3 D) P0abP1

6)

7) Refer to Figure 12-3.What is the area that represents the loss made by the firm?A) the area cdP2P3 B) the area acP0P2C) the area adP0P3 D) the area bcP1P2

7)

Table 12-2

Quantity

(Cases)

Price

(Dollars)

Total Cost

(Dollars)

1 $75 $602 70 853 65 1054 60 1155 55 1306 50 1557 45 1908 40 2309 35 280

Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 12-2 shows the firm sdemand and cost schedules.

8) Refer to Table 12-2.What is Eco Energy s profit?A) $125 B) $140 C) $145 D) $150

8)

2

9) Refer to Table 12-2.What is the maximum output (Q) that maximizes profit and what is the price(P) charged?

A) P=$35; Q=9 cases B) P=$50; Q=6 casesC) P=$45; Q=7 cases D) P=$40; Q=8 cases

9)

10) For productive efficiency to hold,A) average total cost is minimized in production.B) price must equal marginal revenue of the last unit sold.C) price must equal the marginal cost of the last unit produced.D) average variable cost is minimized in production.

10)

Figure 10-4

11) Refer to Figure 10-4. Identify the curves in the diagram.A) E = average fixed cost curve; F = average total cost curve; G = average variable cost curve, H

= marginal cost curveB) E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H =

average fixed cost curve.C) E = marginal cost curve; F = total cost curve; G = variable cost curve, H = average fixed cost

curveD) E = average fixed cost curve; F = variable cost curve; G = total cost curve,

H = marginal cost curve

11)

12) Refer to Figure 10-4. Curve G approaches curve F becauseA) average fixed costs falls as output rises.B) fixed costs falls as capacity rises.C) total costs fall as more and more output is produced.D) marginal costs are above average variable costs.

12)

3

Figure 11-9

13) Refer to Figure 11-9. Suppose the prevailing price is P1 and the perfectly competitive firm iscurrently producing its profit maximizing quantity. In the long run equilibrium,

A) there will be fewer firms in the industry and total industry output decreases.B) there will be more firms in the industry and total industry output remains constant.C) there will be fewer firms in the industry but total industry output increases.D) there will be more firms in the industry and total industry output increases.

13)

14) Refer to Figure 11-9. Suppose the prevailing price is P1 and the firm is currently producing itsprofit maximizing quantity. If the firm represented in the diagram continues to stay in business, inthe long run equilibrium,

A) it will continue to produce Q1 but faces a higher price P2.B) it will expand its output to Q3 and face a price of P1.C) it will reduce its output to Q0 and face a price of P0.D) it will expand its output to Q2 and face a price of P2.

14)

4

Figure 10-1

15) Refer to Figure 10-1. The average product of the 4th workerA) is 11. B) is 68.C) is 17. D) cannot be determined.

15)

16) Refer to Figure 10-1. The marginal product of the 3rd worker isA) 19. B) 15. C) 57. D) 11.

16)

17) Refer to Figure 10-1. Diminishing marginal productivity sets in afterA) the 2nd worker is hired. B) the 3rd worker is hired.C) the 5th worker is hired. D) the 4th worker is hired.

17)

18) If production displays economies of scale, the long run average cost curve isA) above the short run average total cost curve.B) below the long run marginal cost curve.C) upward sloping.D) downward-sloping.

18)

5

Figure 11-6

Figure 11-6 shows cost and demand curves facing a profit-maximizing perfectly competitive firm.

19) Refer to Figure 11-6. Identify the short run shut down point for the firm.A) a B) b C) c D) d

19)

20) Refer to Figure 11-6. Identify the firm s short run supply curve.A) the marginal cost curve B) the marginal cost curve from a and aboveC) the marginal cost curve from b and above D) the marginal cost curve from d and above

20)

21) A major difference between monopolistic competition and perfect competition isA) that products are not homogeneous in monopolistic competition unlike in perfect

competition.B) the degree by which the market demand curves slope downwards.C) the number of sellers in the markets.D) the barriers to entry in the two markets.

21)

22) When a firm produces 50,000 units of output, its total cost equals $6.5 million When it increases itsproduction to 70,000 units of output, its total cost increased to $9.4 million. Within this range, themarginal cost of an additional unit of output is

A) $134.29. B) $135. C) $41.43. D) $145.

22)

23) A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed costof production is $20,000. The price of each good is $10. Should the firm continue to produce in theshort run?

A) Yes, it should continue to produce because its price exceeds its average fixed cost.B) Yes, it should continue to produce because it is minimizing its loss.C) No, it should shut down because it is making a loss.D) Both A and B are correct.

23)

24) In the short run, if marginal product is at its maximum, thenA) average cost is at its minimum. B) total cost is at its maximum.C) marginal cost is at its minimum. D) average variable cost is at its minimum.

24)

6

Figure 12-4

25) Refer to Figure 12-4. The firm represented in the diagram is currently selling Qa units at a price of$Pa. Is this firm maximizing its profit and if it is not, what would you recommend to the firm?

A) No, it is not; since its marginal cost is constant, it should produce and sell as much as it can. Itshould sell Qd units at a price of $Pd.

B) No, it is not; it should lower its price to $Pb and sell Qb units.C) Yes, it is maximizing its profit by charging the highest price possible.D) No, it is not; it should lower its price to $Pc and sell Qc units.

25)

26) If total cost of producing 20 units of output is $1,000 and average variable cost is $35, what is thefirm s average fixed cost at that level of output?

A) $65 B) $50 C) $15 D) $300

26)

27) Which of the following statements is true about marginal revenue?A) If marginal revenue is negative, the additional revenue received from selling 1 more unit of

the good is smaller than the revenue lost from receiving a lower price on all the units thatcould have been sold at the original price.

B) If marginal revenue is zero, it means that quantity demanded falls to zero when a firmchanges its price.

C) If marginal revenue is positive, the additional revenue received from selling 1 more unit ofthe good is smaller than the revenue lost from receiving a lower price on all the units thatcould have been sold at the original price.

D) Marginal revenue increases as price falls and quantity sold increases.

27)

28) A firm has successfully adopted a positive technological change whenA) can pay its workers less yet increase its output.B) it sees a decrease in worker productivity.C) it can produce more output using the same inputs.D) it produces less pollution in its production process.

28)

7

Figure 11-4

Figure 11-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.

29) Refer to Figure 11-4. If the market price is $30 and the firm is producing output, what is theamount of the firm s profit or loss?

A) loss of $1,080 B) loss of $1,080 C) profit of $5,400 D) profit of $1,440

29)

30) If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 unitsof output is $30.23, what will happen to the average cost of production if the 15th unit isproduced?

A) Average cost will fall.B) Average cost could increase or decrease depending on what happens to variable cost.C) Average cost could increase or decrease depending on what happens to fixed cost.D) Average cost increases as more is produced.

30)

31) In perfect competitionA) the market demand curve is perfectly elastic while demand for an individual seller s product

is perfectly inelastic.B) the market demand curve is perfectly inelastic while demand for an individual seller s

product is perfectly elastic.C) the market demand curve and the individual s demand are identical.D) the market demand curve is downward sloping while demand for an individual seller s

product is perfectly elastic.

31)

8

Table 12-1

QuantityPrice

(Dollars)

1 $7.502 7.003 6.504 6.005 5.506 5.00

32) Refer to Table 12-1.What is the marginal revenue of the 3rd unit?A) $1.83 B) $6.50 C) $0.50 D) $5.50

32)

33) Refer to Table 12-1. The Table showsA) an elastic segment of the demand curve.B) an inelastic segment of the demand curve.C) a demand curve with an inelastic segment of the demand curve from $7.50 to $6.50 followed

by an elastic segment.D) a demand curve with an elastic segment of the demand curve from $7.50 to $6.50 followed by

an inelastic segment.

33)

Figure 12-7

Figure 12-7 shows short run cost and demand curves for a monopolistically competitive firm in the market for designerwatches.

34) Refer to Figure 12-7. If the diagram represents a typical firm in the designer watch market, what islikely to happen in the long run?

A) Some firms will exit the market causing the demand to increase for firms remaining in themarket.

B) Inefficient firms will exit the market and new cost efficient firms will enter the market.C) The firms that are making losses will be purchased by their more successful rivals.D) Firms will have to raise their prices to cover costs of production.

34)

9

35) Which of the following is an implicit cost of production?A) the utility bill paid to water, electricity, and natural gas companiesB) the interest you pay your mother for the money she loaned you to start your businessC) the loss in the value of capital equipment due to wear and tearD) the salary you pay yourself for running your business

35)

10

Answer KeyTestname: ECON 202 EXAM 3 FALL 2008

1) A2) C3) B4) D5) B6) A7) A8) C9) B10) A11) B12) A13) A14) D15) C16) B17) A18) D19) B20) C21) A22) D23) B24) C25) B26) C27) A28) C29) A30) A31) D32) D33) A34) A35) C

11