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Homework answers / question archive / ECON 0100 -- SECOND MIDTERM EXAM SPRING TERM 2084 Multiple Choice 1)The total product curve:         a

ECON 0100 -- SECOND MIDTERM EXAM SPRING TERM 2084 Multiple Choice 1)The total product curve:         a

Economics

ECON 0100 -- SECOND MIDTERM EXAM

SPRING TERM 2084

Multiple Choice

1)The total product curve:

        a.     shows the relation between output and the quantity of a variable input for varying levels of the fixed input.

        b.     will become flatter as output increases, if there are diminishing returns to the variable input.             

        c.     will be downward sloping, if there are diminishing returns to the variable input.

        d.    will become horizontal, when the marginal product of the variable input is constant.

 

2.     Colin moves his office from the premises he rents at the mall to a building he has just bought.  As a result of this move,

        a.     his total cost falls.                                             b.     his implicit cost falls

        c.     his opportunity costs falls.                             d.    his explicit cost falls and his implicit cost rises.

 

3.     Suppose Frank knows the average cost of producing 9 scones is $5, while the average cost of producing 10 cones is $5.20.  What is the marginal cost of the 10th unit?

        a.     MC is $7.                                                              b.     MC is $5.20.

        c.     MC is $0.20.                                                        d.    Cannot be determined from the information given.

 

4.     If a firm produces nothing, which of the following costs will be zero?

        a.     variable cost                b.     total cost               c.     average cost         d.    opportunity cost

 

5.     Economies of scale and diseconomies scale explain

        a.     cost behavior in the short run                       b.     profit maximization in the long run

        c.     the U-shape of the long-run ATC         d.    the U-shape of the short-run ATC

 

6.     Suppose there is one fixed input and one variable input used to produce a good.  As the marginal product of the variable input decreases

        a.     marginal cost decreases.                                 b.     marginal cost increases.

        c.     marginal cost remains constant.                  d.    average fixed cost increases.

 

 

7.     Diminishing marginal product of labor occurs when adding another unit of labor

        a.     decreases output

        b.     increases output by an amount smaller than those added by previous units of labor

        c.     increases output by an amount larger than those added by previous units of labor

        d.    decreases output by an amount smaller than those added by previous units of labor

 

The graph below on the left depicts the market for the perfectly competitive wheat industry.  The graph on the right depicts the cost curves (ATC and MC) for a representative wheat producer.  Use the graphs to answer the next 2 questions.

 

8.     For the perfectly competitive profit-maximizing producer depicted in the graph

        a.     marginal revenue is equal to $30.                b.     total revenue is equal to $420.

        c.     economic profits are zero.                              d.    economic profits are $160.

 

9.     In the adjustment to the long-run

        a.     some of the wheat producers will exit the industry.

        b.     total wheat production increases to 10,000 units.

        c.     the “typical or representative” wheat producer will increase the quantity of wheat produced

        d.    the price of wheat will increase.

10.  When profit maximizing firms in competitive markets are earning profits,

        a.     market supply must exceed market demand at the market equilibrium price.

        b.     market demand must exceed market supply at the market equilibrium price.

        c.     the most inefficient firms will be encouraged to leave the market.

        d.    new firms will enter the market.

11.  The exit of existing firms from a competitive market will

        a.     decrease market supply and increase market prices.

        b.     increase market supply and increase market prices.

        c.     increase market supply and decrease market prices.

        d.    decrease market supply and decrease market prices.

 

 

12.  In 1999, sheepherders in the western United States slaughtered 10,000 sheep and buried them in large open pits rather than truck them to the market to be sold. This behavior is most likely explained by

        a.     irrational behavior of sheepherders.

        b.     sheepherders making a shut down decision to save the variable cost of transporting sheep to a slaughter house.

        c.     sheepherders making an exit decision to recover the fixed cost of raising the sheep.

        d.    the rising marginal cost of producing sheep.

 

13.  If a firm in a competitive industry earns zero economic profit, then

        a.     it will shut down in the short run, and only lose its fixed costs.

        b.     it will increase the price for its product until profit becomes positive.

        c.     it will continue to operate as long as price and costs don’t change.

        d.    it clearly is not maximizing profit and will exit the industry.

 

14.  If productive efficiency characterizes a market

        a.     the marginal cost of production is minimized.

        b.     fixed costs are equal to zero.

        c.     output in the market is being produced at the lowest possible resource cost.

        d.    average variable cost is minimized.

 

15.  A perfectly competitive industry achieves allocative efficiency in the long run.  What does this mean?

        a.     Each firm produces up to the point where all scale economies are exhausted.

        b.     Firms allocate factors of production and other inputs to produce the goods and services that best satisfy consumer wants.

        c.     Production occurs at the lowest average total cost.

        d.    Firms choose to maximize output in order to maximize profit and maximize consumer benefits.

 

Use the graph to the right to answer the next 2 questions.                                                                                                                                                   

 

16.  A profit maximizing monopolist will have total cost equal to

 

Quantity

Price and Cost

D

MR

ATCR

MC

Q3

Q2

Q1

P0

P2

P3

P4

Q0

P5

P1

.       a.     Q3 * P1             b.     Q3 * P2  

 

        c.     Q0 * P2           d.    Q1 * P1

 

17.  If this monopolist decides to produce and sell Q2 units of output

        a.     it would have losses of indeterminate size.

        b.     it would continue to make a profit, but would not be operating at a level consistent with profit maximization.

        c.     revenue would be less than if it sold Q0 units of output.

        d.    it could not stay in business in the long run.

 

18.  A monopoly causes a deadweight loss because a monopoly

        a.     earns positive economic profit.    

        b.     is the sole producer of a unique product.

        c.     produces less than the allocatively efficient quantity of output.

        d.    earns tax revenue for the government.

 

19.  Because of a rise in labor costs, a monopoly finds that its marginal cost and average total costs have risen.  Presuming that the monopoly does not shut down, it will

        a.     raise its price, P, and increase the quantity it produces, Q.

        b.     raise its price, P, and decrease the quantity it produces, Q.

        c.     lower its price, P, and increase the quantity it produces, Q.

        d.    lower its price, P, and decrease the quantity it produces, Q.

 

20.  A natural monopoly exists whenever

        a.     a single firm is owned and operated by the federal or local government.

        b.     a natural resource is the main input used in producing the monopoly good.

        c.     a single firm owns a key resource for production of the monopoly good.

        d.    economies of scale provide a large cost advantage to having all of an industry’s output produced by a single firm.

 

21.  Monopolistically competitive firms are typically characterized by

        a.     many firms selling identical products.

        b.     few firms selling similar or identical products.

        c.     few firms selling highly differentiated products.

        d.    many firms selling similar, but not identical products.

 

22.  Compared to a perfectly competitive firm, the demand curve facing a monopolistically competitive firm is

        a.     more elastic because there are many close substitutes for the product for a monopolistically competitive firm.

        b.     less elastic because monopolistically competitive firms produce similar products which may not be perfect substitutes.

        c.     just as elastic because there are many sellers in both markets.

        d.    more elastic because there are no barriers to entry in monopolistic competition.

 

23.  The model of monopolistic competition characterizes the market for plumbing services in a city.  Suppose that the market is initially in long-run equilibrium, and then there is an increase in demand for plumbing services.  In the adjustment to the new long-run

        a.     firms will leave the plumbing market.

        b.     there will be a short-run increase in the number of firms, but then the number will return to the original level.

        c.     new firms will enter the plumbing market.

        d.    firms will shut down, but they will not leave the industry.

 

24.  In monopolistically competitive markets, economic losses

        a.     signal some existing firms to exit the market.

        b.     are never possible.

        c.     signal new firms to enter the market.

        d.    are maintained through government imposed barriers to exit the market.

 

25.  A profit-maximizing firm in a monopolistically competitive market always operates at

        a.     the minimum average total cost.

        b.     where marginal cost is falling.

        c.     excess capacity.

        d.    the minimum efficient scale.

 

 

 

 

 

 

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