Download ECO 2301 005 Review Questions 3 Spring 2014

ECO 2301-005
Review Questions 3
Spring 2014
Name______________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) The Wax Works sells 400 candles at a price of $6 per candle. The Wax Works' total costs for
producing 400 candles are $2,500. The Wax Works' economic profit is
A) -$100.
B) $0.
C) $2,400.
D) $2,500.
1)
2) Perfectly competitive firms must make all of the following decisions EXCEPT
A) what price to charge for its output.
B) how much output to supply.
C) how much of each input to demand.
D) which production technology to use.
2)
3) The Oh So Humble Bakery sells 300 muffins at a price of $1 per muffin. Its explicit costs for
producing 300 muffins are $250. If the bakery is earning a normal rate of return, then implicit costs
must be
A) $50.
B) $100.
C) $250.
D) $350.
3)
Use the information provided in Table 7.1 below to answer the questions that follow.
Table 7.1
Inputs Required to Produce a Product Using Alternative Technologies
Technology
A
B
C
D
Units of Capital
4
6
8
12
Number of Employees
18
12
8
6
4) Refer to Table 7.1 above. Which technology is the most labor intensive?
A) A
B) B
C) C
4)
D) D
5) Refer to Table 7.1. If the hourly wage rate is $10 and the hourly price of capital is $25, which
production technology should be selected?
A) A
B) B
C) C
D) D
5)
6) At the Pampered Pet Salon the marginal products of the first, second, and third workers are 20, 16,
and 10 dogs washed, respectively. The total product (number of dogs washed) of the first two
workers is
A) 16.
B) 20.
C) 36.
D) 46.
6)
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Refer to the information provided in Figure 7.4 below to answer the questions that follow.
Figure 7.4
7) Refer to Figure 7.4. The marginal product of the second worker is
A) 10.
B) 16.
C) 20.
D) 32.
8) Refer to Figure 7.4. The average product of the third worker is
A) 10.
B) 14.
C) 30.
D) 126.
9) Refer to Figure 7.4. Diminishing marginal returns begin when the
A) first
B) second
C) third
7)
8)
_ worker is hired.
D) fifth
10) If the marginal product of labor is less than the average product of labor, then the
A) marginal product must be increasing.
B) average product must be decreasing.
C) marginal product must be decreasing.
D) Both B and C
11) When total product is maximized, marginal product
A) and average product are zero.
C) is positive, but average product is zero.
9)
10)
11)
B) and average product are positive.
D) is zero, but average product is positive.
12) The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of
$1,000. The Lawn Ranger's total fixed costs are
A) $0.
B) $3,000.
C) $5,000.
D) indeterminate because the firm's output level is not known.
12)
13) Which of the following is most likely to be a variable cost for a firm?
A) the franchiser's fee that a restaurant must pay to the national restaurant chain
B) the payroll taxes that are paid on employee wages
C) the monthly rent on office space that it leased for a year
D) the interest payments made on loans
13)
14) The explanation for why marginal cost is positive and rising in the short run is
product of labor in the production process.
A) a zero
B) a diminishing
C) a constant
2
marginal
D) an increasing
14)
15) In the short run where total variable cost is
and increasing.
A) decreasing; increasing
C) increasing; decreasing
at a(n) _
rate, marginal cost is positive
15)
B) decreasing; decreasing
D) increasing; increasing
Refer to the information provided in Figure 8.3 below to answer the questions that follow.
Figure 8.3
16) Refer to Figure 8.3. The marginal cost of the 10th basketball is
A) $2.
B) $3.
C) $3.05.
D) $5.80.
17) Refer to Figure 8.3. If the total fixed cost is $50, then average total cost of producing 10 basketballs
is
A) $3.
B) $5.
C) $8.
D) $80.
16)
17)
Refer to the information provided in Table 8.3 below to answer the questions that follow.
Table 8.3
Number of
Earrings TVC MC AVC TFC TC AFC ATC
0
1
20
2
10
30
3
110
4
20
5
180
18) Refer to Table 8.3. What is the total cost of producing zero units of output?
A) $0
B) $30
C) $60
D) indeterminate from the given information
18)
19) Refer to Table 8.3. The marginal cost of the fourth unit is
and the average total cost of
four units is _
_.
A) $20; $45
B) $30; $35
C) $10; $30
D) indeterminate from the given information
19)
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20) If marginal cost is between average variable cost and average total cost, then
A) average variable cost is increasing and average total cost is decreasing.
B) average variable cost is decreasing and average total cost is increasing.
C) both average variable cost and average total cost are decreasing.
D) both average variable cost and average total cost are increasing.
20)
Refer to the information provided in Table 8.5 below to answer the following questions.
Table 8.5
Number of
Fruit Baskets
0
1
2
3
4
5
6
TFC
$50
50
50
50
50
50
50
TVC
$0
10
15
21
31
46
68
TC
$50
60
65
71
81
96
118
MC
-10
5
6
10
15
22
21) Refer to Table 8.5. Assume that fruit baskets are sold in a perfectly competitive market. The market
price of a fruit basket is $22. To maximize profits, Exotic Fruit should sell _
fruit baskets
and their profit is ________.
A) three; $5
B) four; $7
C) five; $14
D) six; $14
21)
22) The rising part of a perfectly competitive firm's
curve.
A) average variable; demand
C) average fixed; demand
22)
_ cost curve is the firm's short run ________
B) average total; supply
D) marginal; supply
Refer to the information provided in Figure 9.1 below to answer the questions that follow.
Figure 9.1
23) Refer to Figure 9.1. For this farmer to maximize profits he should produce
wheat.
A) 6
B) 9
C) 12
4
bushels of
D) 16
23)
24) Refer to Figure 9.1. This farmer's fixed costs are
A) $0.
B) $24.
C) $45.
D) indeterminate unless we know the level of output the firm is producing.
24)
25) Refer to Figure 9.1. If this farmer is maximizing profits, his profit will be
A) -$24.
B) $45.
C) $48.
D) $72.
26) Refer to Figure 9.1. This farmer would earn a zero economic profit if price was
A) $7.
B) $9.
C) $10.
D) $11.
25)
26)
Refer to the information provided in Figure 9.7 below to answer the questions that follow.
Figure 9.7
27) Refer to Figure 9.7. Suppose demand for wheat is initially D2. If consumer incomes increase, then
demand for wheat will shift to
_. This will _
the equilibrium price of wheat, and
individual profit maximizing firms will produce
_ bushels of wheat.
A) D1; decrease; 0
B) D3; increase; 15
C) D1; increase; 10
D) D3; decrease; 7
27)
28) Refer to Figure 9.7. If demand for wheat is D3, then in the long run
A) the firm will exit the industry.
B) new firms will enter the industry, and the current firms will expand production.
C) the firm will shut down.
D) None of the above is correct.
28)
29) You are hired as an economic consultant to The Pampered Pet Shop. The Pampered Pet Shop
operates in a perfectly competitive industry. This firm is currently producing at a point where
market price equals its marginal cost. The market price is less than its average variable cost. You
should advise the firm to
A) raise its price until it breaks even.
B) cease production immediately because it is not covering its variable costs of production.
C) produce in the short run to minimize its loss, but exit the industry in the long run.
D) lower its price so that it can sell more units of output.
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29)
30) Engineers for the Off Road Skateboard Company have determined that a 10% increase in all inputs
will cause output to increase by 5%. Assuming that input prices remain constant, you correctly
deduce that such a change will cause
_ as output increases.
A) average costs to decrease
B) total cost to decrease
C) average costs to increase
D) average fixed costs to increase
30)
31) On the downward sloping portion of a firm's long-run average cost curve, it is experiencing
A) constant returns to scale.
B) diminishing marginal returns.
C) diseconomies of scale.
D) economies of scale.
31)
32) For constant returns to scale, a(n)
average total cost.
A) increase; higher
C) increase; lower
32)
_ in a firm's scale of production leads to _
B) decrease; no change in
D) decrease; a change in
33) For a perfectly competitive industry, an improvement in technology will cause
A) a movement down the short-run industry supply curve.
B) a movement up the short-run industry supply curve.
C) the industry short-run supply curve to shift to the left.
D) the industry short-run supply curve to shift to the right.
33)
34) Which of the following is the set of conditions necessary for long-run equilibrium for a perfectly
competitive firm?
A) P = SRMC < SRAC = LRAC
B) P = SRMC = SRAC = LRAC
C) P = SRMC = SRAC > LRAC
D) P > SRMC = SRAC = LRAC
34)
35) Industries in which firms are enjoying positive profits are likely to
in the long run.
A) expand
B) contract
C) neither expand nor contract, as firms must earn an economic profit to stay in business
D) expand or contract depending on the normal rate of return
35)
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Answer Key
Testname: REVEIW 3
1) A
2) A
3) A
4) A
5) B
6) C
7) C
8) B
9) C
10) D
11) D
12) B
13) B
14) B
15) D
16) A
17) C
18) C
19) B
20) A
21) D
22) D
23) C
24) B
25) C
26) C
27) B
28) B
29) B
30) C
31) D
32) B
33) D
34) B
35) A
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