Question 1

Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $8 per unit, then the firm should produce less than 100 units of output.

Accepted Answer

A) True 
 B)False

Question 2

When economic profit is zero, only normal profit is earned.

Accepted Answer

A) True 
 B)False

Question 3

Suppose a mechanic uses $150,000 of his own money to start a business. The rate of interest he could earn in a savings account is 1 percent, and the rate of interest he could earn by investing in bonds is 3 percent. What is the opportunity cost of capital when the mechanic uses his money to start his own business?

Accepted Answer

A)   $1,500 per year
B)   $3,000 per year
C)   $4,500 per year
D)   $6,000 per year
E)   $150,000F) B) and E)
G) D) and E)

Question 4

The long run is a

Accepted Answer

A)   period of three years or longer.
B)   period long enough to allow firms to change plant size and capacity.
C)   period long enough to allow firms to make economic decisions.
D)   period that affects larger rather than smaller firms.
E)   race of 10 kilometers or more.F) None of the above
G) A) and D)

Question 5

When a firm makes ____ profit, this sends a signal to others. More competitors would enter the business, increasing supply and driving prices ____.

Accepted Answer

A)   zero economic profit; up
B)   normal profit; down
C)   positive accounting profit; down
D)   positive economic profit; up
E)   positive economic profit; downF) A) and B)
G) B) and E)

Question 6

Average total cost is

Accepted Answer

A)   the per-unit cost and is derived by dividing total cost by marginal cost.
B)   the total unit cost of production.
C)   the per-unit cost and is derived by dividing total cost by the quantity of output.
D)   just the marginal cost adjusted for the workers' productivity level.
E)   derived by dividing marginal cost by the quantity of output.F) B) and C)
G) A) and D)

Question 7

When marginal cost is rising and exceeds marginal revenue, the profit-maximizing firm will

Accepted Answer

A)   produce more.
B)   produce less.
C)   continue producing the same level of output in the short run.
D)   shut down in the long run.
E)   exit in the long run.F) A) and B)
G) B) and D)

Question 8

In the short run, all resources are fixed.

Accepted Answer

A) True 
 B)False

Question 9

-In Table 5.2, the average fixed cost of the first unit of output is ____, while the average fixed cost of producing 8 units of output is ____.

Accepted Answer

A)   $30; $40
B)   $40; $5
C)   $40; $40
D)   $40; $280
E)   $40; $320F) A) and B)
G) B) and E)

Question 10

The average total cost curve indicates that

Accepted Answer

A)   as output rises in the short run, costs decline rapidly.
B)   as output rises in the short run, per unit costs initially fall but eventually rise.
C)   firms generally operate at a highly inefficient point of production.
D)   costs cannot be contained even if businesses employ the proper combination of resources.
E)   as more output is produced in the short run, average total costs must increase.F) A) and D)
G) B) and E)

Question 11

The opportunity cost of going to the movies is the price of entry into the movies.

Accepted Answer

A) True 
 B)False

Question 12

In the short run,

Accepted Answer

A)   all the firm's resources are variable.
B)   none of the firm's resources is variable.
C)   the time period always covers one year.
D)   technically efficient production is not possible.
E)   at least one of the firm's resources cannot be varied.F) A) and E)
G) A) and B)

Question 13

-In Table 5.2, marginal cost is equal to average total cost at a quantity of

Accepted Answer

A)   1.
B)   3.
C)   4.
D)   5.
E)   8.F) B) and C)
G) C) and E)

Question 14

Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $3 per unit and the firm produces at the profit-maximizing level, the firm will earn an economic profit equal to

Accepted Answer

A)   $1,000.
B)   $700.
C)   $400.
D)   $600.
E)   -$700.F) A) and C)
G) A) and B)

Question 15

When economic profit is zero, the firm's total revenue equals total costs, including opportunity costs.

Accepted Answer

A) True 
 B)False

Question 16

Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $15 per unit, the firm should produce

Accepted Answer

A)   zero units of output.
B)   less than 100 units of output.
C)   100 units of output.
D)   more than 100 units of output.
E)   The amount is impossible to determine from the information given.F) A) and E)
G) A) and C)

Question 17

-If the firm described in Table 5.2 decided to produce nothing, which of the following would be true?

Accepted Answer

A)   Total cost would be zero.
B)   Total variable cost would be $30.
C)   Total fixed cost would be $40.
D)   Average total cost would be zero.
E)   Marginal cost would be $10.F) A) and B)
G) B) and D)

Question 18

Normal profit is also called positive economic profit.

Accepted Answer

A) True 
 B)False

Question 19

As output rises unit by unit, costs ____ relatively ____ at first, but then ____ more ____.

Accepted Answer

A)   decrease; slowly; increase; rapidly
B)   decrease; quickly; increase; slowly
C)   rise; slowly; increase; rapidly
D)   rise; quickly; increase; slowly
E)   rise; quickly; increase; quicklyF) C) and E)
G) A) and B)

Exam 5: Costs and Profit Maximization

Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $8 per unit, then the firm should produce less than 100 units of output.

Correct Answer
verified

-If the firm described in Table 5.2 decided to produce nothing, which of the following would be true?

Correct Answer
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The long run is a

Correct Answer
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When a firm makes profit, this sends a signal to others. More competitors would enter the business, increasing supply and driving prices .

Correct Answer
verified

Correct Answer
verified

When marginal cost is rising and exceeds marginal revenue, the profit-maximizing firm will

Correct Answer
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-In Table 5.2, the average fixed cost of the first unit of output is , while the average fixed cost of producing 8 units of output is .

Correct Answer
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Average total cost is

Correct Answer
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The opportunity cost of going to the movies is the price of entry into the movies.

Correct Answer
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When economic profit is zero, only normal profit is earned.

Correct Answer
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When economic profit is zero, the firm's total revenue equals total costs, including opportunity costs.

Correct Answer
verified

In the short run,

Correct Answer
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Normal profit is also called positive economic profit.

Correct Answer
verified

In the short run, all resources are fixed.

Correct Answer
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The average total cost curve indicates that

Correct Answer
verified

Correct Answer
verified

Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $15 per unit, the firm should produce

Correct Answer
verified

-In Table 5.2, marginal cost is equal to average total cost at a quantity of

Correct Answer
verified

As output rises unit by unit, costs relatively at first, but then more .

Correct Answer
verified

Exam 5: Costs and Profit Maximization

Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $8 per unit, then the firm should produce less than 100 units of output.

Correct AnswerverifiedShow Answer

-If the firm described in Table 5.2 decided to produce nothing, which of the following would be true?

Correct AnswerverifiedShow Answer

The long run is a

Correct AnswerverifiedShow Answer

When a firm makes ____ profit, this sends a signal to others. More competitors would enter the business, increasing supply and driving prices ____.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When marginal cost is rising and exceeds marginal revenue, the profit-maximizing firm will

Correct AnswerverifiedShow Answer

-In Table 5.2, the average fixed cost of the first unit of output is ____, while the average fixed cost of producing 8 units of output is ____.

Correct AnswerverifiedShow Answer

Average total cost is

Correct AnswerverifiedShow Answer

The opportunity cost of going to the movies is the price of entry into the movies.

Correct AnswerverifiedShow Answer

When economic profit is zero, only normal profit is earned.

Correct AnswerverifiedShow Answer

When economic profit is zero, the firm's total revenue equals total costs, including opportunity costs.

Correct AnswerverifiedShow Answer

In the short run,

Correct AnswerverifiedShow Answer

Normal profit is also called positive economic profit.

Correct AnswerverifiedShow Answer

In the short run, all resources are fixed.

Correct AnswerverifiedShow Answer

The average total cost curve indicates that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $15 per unit, the firm should produce

Correct AnswerverifiedShow Answer

-In Table 5.2, marginal cost is equal to average total cost at a quantity of

Correct AnswerverifiedShow Answer

As output rises unit by unit, costs ____ relatively ____ at first, but then ____ more ____.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
verified

When a firm makes profit, this sends a signal to others. More competitors would enter the business, increasing supply and driving prices .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

-In Table 5.2, the average fixed cost of the first unit of output is , while the average fixed cost of producing 8 units of output is .

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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As output rises unit by unit, costs relatively at first, but then more .

Correct Answer
verified