Download Rupp Econ 2113 3B Fall 09

Econ 2113 – Test 3B
Name:________________________________
Dr. Rupp – Fall 2009
Pledge: “I have neither given or received aid on this
exam”.
Signature:________________________________
Multiple Choice:
Identify the letter of the choice that best completes the statement or answers the question.
Table 13-5
____
1.
____
2.
____
3.
____
4.
____
5.
____
6.
____
7.
Measures of Cost for ABC Inc. Widget Factory
Quantity
Variable
Total
Fixed
of Widgets
Costs
Costs
Costs
0
$10
1
$1
2
$3
$13
3
$6
$16
4
$10
5
$25
6
$21
$10
Refer to Table 13-5. The average fixed cost of producing five widgets is
a. $1.00
b. $2.00
c. $3.00
d. $5.00
Refer to Table 13-5. The marginal cost of producing the sixth widget is
a. $1.00.
b. $3.50.
c. $5.00.
d. $6.00.
Refer to Table 13-5. What is the variable cost of producing five widgets?
a. $13.00
b. $14.00
c. $15.00
d. It can't be determined from the information given.
If a firm in a perfectly competitive market triples the number of units of output sold, then total revenue will
a. more than triple.
b. less than triple.
c. exactly triple.
d. Any of the above may be true depending on the firm’s labor productivity.
Which of the following is NOT a characteristic of a perfectly competitive market?
a. Firms are price takers.
b. Firms have difficulty entering the market.
c. There are many sellers in the market.
d. Goods offered for sale are largely the same.
When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit
a. is negative (accounting losses).
b. is positive.
c. is also zero.
d. could be positive, negative or zero.
If a competitive firm is (i) selling 1,000 units of its product at a price of $9 per unit and (ii) earning a positive
profit, then
a. its total cost is less than $9,000.
b. its marginal revenue is less than $9.
c. its average revenue is greater than $9.
____
d. the firm cannot be a competitive firm since competitive firms can only earn zero profit.
8. Which of the following statements regarding a competitive firm is true?
a. Since demand is downward sloping, if a firm increases its level of output, the firm will
have to charge a lower price to sell the additional output.
b. If a firm raises its price, the firm may be able to increase its total revenue even though it
will sell fewer units.
c. By lowering its price below the market price, the firm will benefit from being able to sell
more units at the lower price than it could have sold by charging the market price.
d. For all firms, average revenue equals the price of the good.
Table 14-3
Use the information for a competitive firm in the table below to answer the following questions.
Quantity
Total Revenue
Total Cost
0
1
2
3
4
5
6
7
8
9
____
____
____
____
____
$0
9
18
27
36
45
54
63
72
81
$10
14
19
25
32
40
49
59
70
82
9. Refer to Table 14-3. At a production level of 4 units which of the following is true?
a. Marginal cost is $6.
b. Total revenue is greater than variable cost.
c. Marginal revenue is less than marginal cost.
d. The firm is maximizing profit.
10. Refer to Table 14-3. At which quantity of output is marginal revenue equal to marginal cost?
a. 3
b. 6
c. 8
d. 9
11. Refer to Table 14-3. The maximum profit available to this firm is
a. $2
b. $3
c. $4
d. $5
12. When price is greater than marginal cost for a firm in a competitive market,
a. marginal cost must be falling.
b. the firm must be minimizing its losses.
c. there are opportunities to increase profit by increasing production.
d. the firm should decrease output to maximize profit.
13. When a perfectly competitive firm decides to shut down, it is most likely that
a. marginal cost is above average variable cost.
b. marginal cost is above average total cost.
c. price is below the firm’s average variable cost.
d. fixed costs exceed variable costs.
____ 14. When profit-maximizing firms in competitive markets are earning profits,
a. market demand must exceed market supply at the market equilibrium price.
b. market supply must exceed market demand at the market equilibrium price.
c. new firms will enter the market.
d. the most inefficient firms will be encouraged to leave the market.
Figure 14-5
The figure below depicts the cost structure of a firm in a competitive market.
____ 15. Refer to Figure 14-5. When market price is P1, a profit-maximizing firm's total revenue can be represented by the area
a.
b.
c.
d.
____
____
Q2.
Q2.
Q2.
Q3.
P1
P2
P3
P1
16. Refer to Figure 14-5. When market price is P4, a profit-maximizing firm's total cost can be represented by the area
a. P4 Q1
b. P4 Q4
c. P2 Q4
d. Total costs cannot be determined from the information in the figure.
17. Refer to Figure 14-5. When market price is P1, a profit-maximizing firm's total profit or loss can be represented by which area?
a. P1 Q3; profit
b. (P3 - P1) Q2 ; loss
c. (P2 - P1) Q1; loss
d. We can't tell because we don't know fixed costs.
____ 18. A competitive firm's short-run supply curve is part of which of the following curves?
a. Marginal revenue
b. Average variable cost
c. Average total cost
d. Marginal cost
____ 19. In the long run, a profit-maximizing firm will choose to exit a market when
a. average fixed cost is falling.
b. variable costs exceed sunk costs.
c. marginal cost exceeds marginal revenue at the current level of production.
d. total revenue is less than total cost.
____ 20. For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a
marginal cost of $7. It follows that
a. the production of the 100th unit of output increases the firm's profit by $3.
b. the production of the 100th unit of output increases the firm's average total cost by $7.
c. the firm's profit-maximizing level of output is less than 100 units.
d. the production of the 110th unit of output must increase the firm’s profit by less than $3.
____ 21. The following table gives the average total cost of production for various levels of output for a competitive
firm:
Q
0
ATC
--
1
2
3
4
5
____ 22.
____ 23.
____ 24.
____ 25.
____ 26.
____ 27.
____ 28.
10
8
7
8
10
If the firm's fixed cost of production is $3 and the market price is $10, how many units should the firm
produce to maximize its profit?
a. 1
b. 2
c. 3
d. 4
A view of a spectacular sunset along a private beach is an example of a
a. private good.
b. public good.
c. nonrival but excludable good.
d. rival but nonexcludable good.
Goods that are rival in consumption but not excludable would be considered
a. natural monopolies.
b. common resources.
c. public goods.
d. private goods.
Which of the following goods is rival and not excludable?
a. national defense
b. cable TV service
c. lobsters in the ocean
d. a boat
The free-rider problem
a. forces the supply of a public good to exceed its demand.
b. allows more people to pay for the public good than if it were a private good.
c. explains why many local governments supply public goods.
d. is reflected in the above-market price of a public good in comparison to a private good.
A lighthouse is typically considered to be a public good because
a. the owner of the lighthouse is able to exclude beneficiaries from enjoying the lighthouse.
b. there is rarely another lighthouse nearby to provide competition.
c. a nearby port authority cannot avoid paying fees to the lighthouse owner.
d. all passing ships are able to enjoy the benefits of the lighthouse without paying.
The Ogallala aquifer is a large underground pool of fresh water under several western states in the United
States. Any farmer with land above the aquifer can at present pump water out of it. We might expect that
a. over time, the aquifer is likely to be overused.
b. each farmer has a sufficient incentive to conserve the water.
c. state governments have an incentive to insure that their farmers do not overuse the water.
d. resources would be used more efficiently if the government paid for the pumps farmers
use to get the water.
The Tragedy of the Commons results when a good is
a. rival in consumption and not excludable.
b. excludable and not rival in consumption.
c. both rival in consumption and excludable.
d. neither rival in consumption nor excludable.
Table 13-9
Output
0
10
Total Cost
40
60
20
30
40
50
90
130
180
240
____ 29. Refer to Table 13-9. What is the total fixed cost for this firm?
a. $20
b. $30
c. $40
d. $50
____ 30. Explicit costs
a. require an outlay of money by the firm.
b. include all of the firm's opportunity costs.
c. include income that is forgone by the firm's owners.
d. Both b and c are correct.
____ 31. Economic profit
a. will never exceed accounting profit.
b. is most often equal to accounting profit.
c. is always at least as large as accounting profit.
d. is a less complete measure of profitability than accounting profit.
____ 32. Economies of scale occur when
a. long-run average total costs rise as output increases.
b. long-run average total costs fall as output increases.
c. average fixed costs are falling.
d. average fixed costs are constant.
___ 33. Kevin quit his $65,000 a year corporate lawyer job to open up his own law practice. In Kevin's first year in
business his total revenue equaled $150,000. Kevin's explicit cost during the year totaled $85,000. Using the
information from Kevin's first year in business, what is his economic profit?
a. $0
b. $20,000
c. $65,000
d. $85,000
____ 34. The difference between accounting profit and economic profit relates to
a. the manner in which revenues are defined.
b. how total revenue is calculated.
c. the manner in which costs are defined.
d. the price of the good in the market.
____ 35. The marginal product of labor can be defined as
a. change in profit/change in labor.
b. change in output/change in labor.
c. change in labor/change in output.
d. change in labor/change in total cost.
____ 36. Which of the following statements about a production function is correct for a firm that uses labor to produce
output?
a. The production function depicts the relationship between the quantity of labor and the
quantity of output.
b. The slope of the production function measures marginal cost.
c. The quantity of output determines the maximum amount of labor the firm will hire.
d. All of the above are correct.
____ 37. Which of these assumptions is often realistic for a firm in the short run?
a. The firm can vary both the size of its factory and the number of workers it employs.
b. The firm can vary the size of its factory, but not the number of workers it employs.
c. The firm can vary the number of workers it employs, but not the size of its factory.
d. The firm can vary neither the size of its factory nor the number of workers it employs.
Table 13-2
Number of Workers
Output
0
0
1
50
2
110
3
180
4
260
5
330
____ 38. Refer to Table 13-2. What is the marginal product of the fourth worker?
a. 65
b. 70
c. 75
d. 80
____ 39. Refer to Table 13-2. At which number of workers does diminishing marginal product begin?
a. 2
b. 3
c. 4
d. 5
____ 40. Which of the following measures of cost is best described as "the increase in total cost that arises from an
extra unit of production?"
a. Variable cost
b. Average variable cost
c. Average total cost
d. Marginal cost
Extra Credit Question:
To be eligible to answer this extra credit question, you must satisfy both criteria below: •
Your cell phone has not rung in class
•
You are taking this test in class at the regularly scheduled time: (Thursday, November 12)
____ 41. Which of the following represents the firm's long-run condition for exiting a market?
a. Exit if P < MC
b. Exit if P < FC
c. Exit if P < ATC
d. Exit if MR < MC
Rupp test 3B
Answer Section
MULTIPLE CHOICE
1. ANS:
MSC:
2. ANS:
MSC:
3. ANS:
MSC:
4. ANS:
MSC:
5. ANS:
MSC:
6. ANS:
MSC:
7. ANS:
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9. ANS:
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10. ANS:
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11. ANS:
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12. ANS:
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13. ANS:
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14. ANS:
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16. ANS:
MSC:
17. ANS:
MSC:
18. ANS:
MSC:
19. ANS:
MSC:
20. ANS:
MSC:
21. ANS:
MSC:
B
Applicative
D
Applicative
C
Applicative
C
Analytical
B
Interpretive
B
Interpretive
A
Analytical
D
Analytical
B
Analytical
B
Applicative
D
Applicative
C
Analytical
C
Interpretive
C
Interpretive
A
Analytical
C
Analytical
B
Analytical
D
Definitional
D
Analytical
A
Analytical
C
Analytical
DIF: 2
REF: 13-3
TOP: Average fixed cost
DIF: 2
REF: 13-3
TOP: Marginal cost
DIF: 2
REF: 13-3
TOP: Variable costs
DIF: 1
REF: 14-1
TOP: Total revenue
DIF: 1
REF: 14-1
TOP: Competitive markets
DIF: 2
REF: 14-1
TOP: Economic profit
DIF: 2
REF: 14-1
TOP: Profit
DIF: 2
REF: 14-1
TOP: Average revenue
DIF: 2
REF: 14-2
TOP: Competitive firms
DIF: 2
REF: 14-2
TOP: Profit maximization
DIF: 1
REF: 14-2
TOP: Profit
DIF: 2
REF: 14-2
TOP: Profit maximization
DIF: 2
REF: 14-2
TOP: Profit maximization
DIF: 2
REF: 14-2
TOP: Competitive markets
DIF: 2
REF: 14-2
TOP: Total revenue
DIF: 2
REF: 14-2
TOP: Total cost
DIF: 2
REF: 14-2
TOP: Profit
DIF: 2
REF: 14-2
TOP: Supply curve
DIF: 2
REF: 14-2
TOP: Profit maximization
DIF: 2
REF: 14-2
TOP: Profit maximization
DIF: 3
REF: 14-2
TOP: Profit maximization
22. ANS:
TOP:
23. ANS:
MSC:
24. ANS:
C
DIF: 2
REF: 11-1
Excludability, Rivalry in consumption
B
DIF: 2
REF: 11-1
Applicative
C
DIF: 2
REF: 11-1
MSC: Applicative
TOP: Rivalry in consumption
TOP: Common resources
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
MSC:
ANS:
Applicative
C
Applicative
D
Applicative
A &C
Interpretive
A
Definitional
C
30. ANS:
MSC:
31. ANS:
MSC:
32. ANS:
33. ANS:
MSC:
34. ANS:
MSC:
35. ANS:
MSC:
36. ANS:
MSC:
37. ANS:
MSC:
38. ANS:
MSC:
39. ANS:
MSC:
40. ANS:
MSC:
41. ANS:
MSC:
25.
26.
27.
28.
29.
DIF: 2
REF: 11-2
TOP: Free riders
DIF: 2
REF: 11-2
TOP: Free riders
DIF: 2
REF: 11-2
TOP: Public goods
DIF: 2
REF: 11-3
TOP: Tragedy of the Commons
A
Definitional
A
Interpretive
B
DIF: 1
REF: 13-1
TOP: Explicit costs
DIF: 2
REF: 13-1
TOP: Economic profit
A
Applicative
C
Definitional
B
Definitional
A
Interpretive
C
Definitional
D
Analytical
D
Analytical
D
Definitional
C
Definitional
DIF: 2
REF: 13-1
TOP: Economic profit
DIF: 2
REF: 13-1
TOP: Economic profit
DIF: 1
REF: 13-2
TOP: Marginal product of labor
DIF: 2
REF: 13-2
TOP: Production function
DIF: 1
REF: 13-2
TOP: Short run
DIF: 2
REF: 13-2
TOP: Marginal product
DIF: 1
REF: 13-2
TOP: Marginal product
DIF: 1
REF: 13-3
TOP: Marginal cost
DIF: 2
REF: 14-2
TOP: Profit maximization