Answer SectionPractice Test for the Final ExamQuestion 1: Complete the following table. At what point does diminishing marginal return set in?Units of the Variable ResourceTotal ProductMarginal Product001102223944534Question 2: Complete the following table, assuming that each unit of labor costs $75 per day.Quantity of Labor per DayOutput per DayFixed CostVariable CostTotal CostMarginal Cost0-$30015751521115012.53154183006002552037.5Graph the fixed cost, variable cost, and total costWhat is the marginal product of going from two to three units of laborWhat is average total cost when output is 18 units per day?Question 3: Nimbus, Inc., makes brooms and then sells them door-to-door. Here is the relationship between the number of workers and Nimbuss output in a given day:WorkersOutputMarginal ProductTotal CostAverage Total CostMarginal Cost001202503904120514061507155Fill in the column of marginal products. What pattern do you see? How might you explain it?A worker costs $100 a day, and the firm has fixed cost of $200. Use this information to fill in the column for average total cost. Fill in the column for average total cost. What pattern do you see?Now fill in the column for marginal cost. What pattern do you see?Compare the column for marginal product and the column for marginal cost. Explain the relationship.Compare the column for average total cost and column for marginal cost. Explain relationship. Question 4: Use the following data to answer the questions below:QVCMCAVC110216320425531638746855965Calculate the marginal cost and average variable cost for each level of production.How much would the firm produce if it could sell its product for $5? For $7? For $10?Explain your answer for part b.Assuming that its fixed cost is $3, calculate the firms profit at each of the production levels in part (b). Question 5: Draw the cost curves for a typical firm. For a given price, explain how the firm chooses the level of output that maximizes profit. At that level of output, show on your graph the firms total revenue and total costs. Question 6: Draw the demand, marginal revenue, average total cost, and marginal cost curves for a monopolist. Show the profit-maximizing level of output, the profit maximizing price, and the amount of profit. Multiple ChoiceIdentify the letter of the choice that best completes the statement or answers the question.____1.Which of the following is not characteristic of perfect competition?a.many buyers and sellersb.brand name advertisingc.homogeneous productsd.fully informed buyers and sellerse.free entry and exit of firms____2.In perfect competition, if one firm raises its price,a.others will followb.that firm will increase its revenuesc.that firm will lose revenues because other firms will not followd.all consumers will be adversely affectede.the market demand curve will shiftExhibit 1____3.If the price-taking firm in Exhibit 1 is currently producing 6 units, then to maximize profit in the short run, it shoulda.keep producing 6 unitsb.increase production to 12 unitsc.increase production to 14 unitsd.increase production to 8 unitse.shut down____4.In the short run, producer surplus at each output level equalsa.P - MCb.TR - AVCc.TR + VCd.TR - AFCe.TR + TC____5.The short run is a period of timea.equal to or less than six monthsb.during which all resources may be variedc.during which all resources are fixedd.during which at least one resource is fixede.during which at least one resource may be varied____6.When diminishing marginal returns set in, total producta.is negativeb.decreases at an increasing ratec.decreases at a decreasing rated.increases at an increasing ratee.increases at a decreasing rateExhibit 2____7.Fixed cost in Exhibit 2 equalsa.$20b.$30c.$50d.$280e.we cannot calculate fixed cost____8.If marginal cost exceeds average variable cost,a.average variable cost is negativeb.average variable cost is increasingc.marginal cost is greater than average total costd.average variable cost is decreasinge.average fixed cost is increasing____9.Which of the following is true of the MC curve?a.It intersects the ATC curve at its minimum, but it does not intersect the AVC curve at its minimum.b.It intersects the AVC curve at its minimum, but it does not intersect the ATC curve at its minimum.c.It intersects both the ATC and the AVC curves at their minimums.d.It intersects both the ATC and the AFC curves at their minimums.e.It intersects both the AVC and the AFC curves at their minimums.____10.The marginal product of labor in the production of chairs is 30 per hour. The marginal rate of technical substitution is of hours of labor for hours of machines-capital is 1/3. The marginal product of capital is:a.90b.1c.27d.3e.10____11.In the long run all inputs of production are______. This allows the firm to produce at a _______ than in the short runa.fixed; lower average costb.fixed; higher average costc.variable; lower average costd.variable; higher average cost____12.When we have economies and diseconomies of scale, the long run average cost curve:a.envelopes all short run average cost curves from the lowest pointsb.envelopes all short run average cost curves c.lies above short run average cost curvesd.lies below and does not touch the short run average cost curves e.can be above or below the short run average cost curves____13.The short run supply curve of a firm in perfectly competitive market is:a.the portion of the marginal cost curve that lies above average variable costb.the portion of the marginal cost that lies above average total costc.the portion of the marginal cost that lies above average fixed costd.the rising portion of the marginal cost curvee.the rising portion of the average variable cost____14.A firm in perfectly competitive market should shut down if :a.price is above average total costb.price is above average variable costc.price is below average total cost but above average variable costd.price is equal to average variable coste.price is below average variable cost____15.A firm maximizes profit where:a.price = marginal costb.marginal cost = average total costc.marginal cost = average variable costd.marginal cost = average fixed coste.marginal revenue = average variable cost____16.At which price and quantity is profit maximized for the perfectly competitive firm represented in the figure above?a.$40 and 70b.$40 and 80c.$8 and zero outputd.$4 and 40e.$8 and 70____17.When marginal product of labor is greater than average product of labor:a.average product of labor must be increasingb.average product of labor must be decreasing c.marginal product of labor must be increasingd.marginal product of labor must be decreasinge.None of the above____ 18.A production functiona.shows the functions of production such as income, consumption, and employmentb.is a theoretical concept having no relevance to real-world productionc.is the quota a firm manager expects the workers to meetd.shows the relationship between quantities of inputs used and quantity of output producede.quantifies the amounts of variable inputs needed to produce fixed inputs_____ 19.An important difference between a perfectly competitive firm and a monopolist is thata.the perfectly competitive firm faces a horizontal demand curve and the monopolist faces a downward-sloping demand curveb.the perfectly competitive firm tends to be largerc.only the monopolist attempts to maximize profitd.only the monopolist maximizes profit at the quantity where marginal cost equals marginal revenuee.only the perfectly competitive firm maximizes profit_____ 20.Which of the following does a monopoly control, that a perfectly competitive firm does not control?a.plant sizeb.what price to chargec.technologyd.how much to producee.what inputs to useAnswer SectionMULTIPLE CHOICE1.ANS:B2.ANS:C3.ANS:B4.ANS:A5.ANS:D6.ANS:E7.ANS:C8.ANS:B9.ANS:C10.ANS:A11.ANS:C12.ANS:B13.ANS:A14.ANS:E15.ANS:A16.ANS:E17.ANS:A 18. ANS: D 19. ANS: A 20. ANS: B