Economics 211
1.
A)
B)
C)
D)
What is the main goal of a firm?
To be as big as possible.
To hire as many people as possible.
To make as much profit as possible.
All of the above answers are correct.
2.
A)
B)
C)
D)
Explicit costs differ from implicit costs in that
explicit costs are what an accountant would consider costs and are usually less than implicit costs.
explicit costs are paid in money, but implicit costs are often non-paid opportunity costs.
implicit costs are always present while some firms do not have any explicit costs.
explicit costs are more important than implicit costs.
3.
A)
B)
C)
D)
Heidi quit her job as a chef making $40,000 per year to start her own restaurant. The first year, Heidi’s restaurant earned
$100,000 in revenue. Heidi pays $50,000 per year in wages to the waitresses and hostess, $20,000 per year to buy food etc.
What is Heidi’s economic profit for the year?
$80,000
$50,000
$30,000
–$10,000
4.
A)
B)
C)
D)
The short run is a time period
required over which profits can be earned from production.
during which all resources are variable.
during which at least one resource is fixed.
during which all resources are fixed.
Labor
(workers per
day)
0
1
2
3
4
5
Total product
(hats per day)
0
4
10
18
25
30
5.
A)
B)
C)
D)
The above table shows the total product of producing baseball hats. The marginal product of the 4th worker is equal to
25 baseball hats.
21 baseball hats.
7 baseball hats.
6.25 baseball hats.
6.
A)
B)
C)
D)
If a firm’s marginal product of labor is less than its average product of labor, then an increase in the quantity of labor it
employs definitely will
decrease its total product.
decrease its average product of labor.
increase its marginal product of labor.
not change its average product of labor.
7.
A)
B)
C)
D)
A technological change that increases productivity
shifts the total product curve and the average product curve upward, but leaves the marginal product curve unchanged.
shifts the total product curve upward, but leaves the average product curve and the marginal product curve unchanged.
shifts the total product curve and the marginal product curve upward, but leaves the average product curve unchanged.
shifts the total product curve, the average product curve, and the marginal product curve upward.
Labor
(workers)
0
1
2
3
4
8.
A)
B)
C)
D)
Output
(bikes)
0
20
50
60
64
Total
fixed cost
(dollars)
200
Total
variable cost
(dollars)
Total cost
(dollars)
100
The table above gives costs at Jan’s Bike Shop. Unfortunately, Jan’s record keeping has been spotty. Each worker is paid
$100 a day. Labor costs are the only variable costs of production. What is the total cost associated with producing 60 bikes?
$200
$300
$400
$500
A)
B)
C)
D)
Flaming Fernando’s is a restaurant that sells Fiery Frijoles. Fernando charges Flaming Fernando’s $1,000 annually for use of
his name. If Fernando increases the fee for use of his name,
the restaurant’s average fixed cost, average variable cost, average total cost, and marginal cost curves will all shift upward.
only the restaurant’s average fixed cost, average total cost, and marginal cost curves will shift upward.
only the restaurant’s average variable cost, average total cost, and marginal cost curves will shift upward.
only the restaurant’s average fixed cost and average total cost curves will shift upward.
10.
A)
B)
C)
D)
The marginal cost eventually increases because
of the law of diminishing returns.
eventually each additional worker produces a successively smaller addition to output.
the marginal product of the variable input eventually falls.
All of the above answers are correct.
11.
A)
B)
C)
D)
Economies of scale
lead to rising long-run average costs as output increases.
occur if output more than doubles when capital and labor double.
occur if output less than doubles when capital and labor double.
occur when management complexity brings rising average cost.
12.
A)
B)
C)
D)
One reason for diseconomies of scale is that, at very large scales, management systems can become
more efficient because they can effectively manage more workers.
increasingly complex and inefficient.
more numerous than the workers they manage.
None of the above.
13.
A)
B)
C)
D)
Which of the following is NOT a defining characteristic of perfectly competitive markets?
Many buyers and sellers.
Unrestricted entry and exit.
Consumer knowledge about prices charged by each firm.
Higher prices being charged for certain name brands.
14.
A)
B)
C)
D)
When a firm is considered to be a “price taker” that means that it
can charge any price that it wants to charge, that is, “take” any price it wants.
pays a fixed price for all of its inputs.
will accept (“take”) the lowest price that its customers offer.
cannot influence the industry price of the good that it sells.
15.
A)
B)
C)
D)
In perfect competition,
the market demand for the good is perfectly elastic but the demand for the output of one firm is not perfectly elastic.
the market demand for the good is not perfectly elastic but the demand for the output of one firm is perfectly elastic.
both the market demand for the good and the demand for the output of one firm are perfectly elastic.
neither the market demand for the good nor the demand for the output of one firm is perfectly elastic.
9.
16.
A)
B)
C)
D)
Which of the following is a short-run decision for a firm?
Whether to produce or shutdown.
Whether to increase or decrease its plant size.
Whether to enter or exit an industry.
None of the above are short-run decisions.
Quantity
(dozens of sea shells per
day)
200
201
202
203
204
205
206
Total variable cost
(dollars)
60.00
61.00
62.50
64.00
66.00
68.50
72.00
A)
B)
C)
D)
Sue’s Sea Shells by the Sea Shore is a perfectly competitive firm selling sea shells at the market price of $2/dozen. Sue’s Sea
Shells by the Sea Shore has fixed costs of $40/day and a daily variable cost schedule in the table above. The profitmaximizing level of output for Sue’s Sea Shells by the Sea Shore is
202 dozen sea shells by the sea shore per day.
204 dozen sea shells by the sea shore per day.
205 dozen sea shells by the sea shore per day.
206 dozen sea shells by the sea shore per day.
18.
A)
B)
C)
D)
In the above figure, given a price of $10, the firm’s maximum total economic profit is equal to
$60.
$140.
$200.
MR – MC.
19.
A)
Which of the following statements is TRUE?
The presence of positive economic profit in a perfectly competitive industry is consistent with the characteristics of a longrun competitive equilibrium.
When firms in a perfectly competitive industry earn economic losses, some will exit in the long run, causing the industry
supply curve to shift rightward.
If a profit-maximizing firm in a perfectly competitive industry is earning positive economic profit, then it must be producing
at a level of output where marginal revenue is greater than average total cost.
If a profit-maximizing firm in a perfectly competitive industry is earning an economic loss, then it must be producing at a
level of output where price is greater than average total cost.
17.
B)
C)
D)
20.
A)
B)
C)
D)
21.
Suppose that newspaper companies are now required to use recycled paper, which is more expensive than new paper. Which
of the following is most likely to result if the newspaper industry is highly competitive?
The firms’ costs will rise, resulting in positive economic profit in the short run and, hence, the industry supply curve will shift
rightward in the long run.
The firms’ costs will rise, resulting in economic losses in the short run and, hence, the industry supply curve will shift
rightward in the long run.
The firms’ costs will rise, resulting in economic losses in the short run and, hence, the industry supply curve will shift
leftward in the long run.
The industry supply curve will shift leftward in the short run, causing permanent long-run economic losses.
A)
B)
C)
D)
Suppose a new vaccine for Lyme disease is developed by Merck, a large drug company. Which of the following is most
likely to occur?
Merck will apply for a patent on the vaccine that grants it the monopoly rights to the vaccine for many years.
Merck will have a monopoly on this vaccine because of economies of scale.
Other firms will quickly copy the formula making the market for the vaccine perfectly competitive.
Merck will not tell anyone about this breakthrough.
22.
A)
B)
C)
D)
Which of the following is a characteristic of a single-price monopoly?
The firm is a price taker.
Demand is perfectly elastic.
There are many close substitutes for the firm’s product.
Price exceeds marginal revenue.
23.
A)
Which of the following statements is FALSE?
In the short run, monopolists may operate even though they are incurring an economic loss but in the short run perfect
competitors always shut down if they are incurring an economic loss.
Monopolists can earn an economic profit in the long run but perfect competitors cannot.
Monopolists can set their price while perfect competitors cannot.
Monopolists are protected by barriers to entry while perfect competitors are not.
B)
C)
D)
Rooms rented
monthly
0
1
2
3
4
5
6
7
8
9
10
11
24.
A)
B)
C)
D)
25.
A)
B)
C)
D)
Price
(dollars per room)
201
191
181
171
161
151
141
131
121
111
101
91
Total cost
(dollars)
100
200
290
370
440
520
610
710
820
940
1090
1290
The table above shows the demand and total cost schedule for a monopolist hotel. What is the marginal revenue from renting
out the fifth room each night?
$111
$141
$151
$161
The table above shows the demand and total cost schedule for a monopolist hotel. What price should the monopolist charge if
it is a profit maximizer?
$171
$161
$151
$141
26.
A)
B)
C)
D)
Relative to a perfectly competitive industry with the same cost and demand, a single-price monopolist produces
more output and has a higher price.
less output and has a lower price.
more output and has a lower price.
less output and has a higher price.
27.
A)
B)
C)
D)
Price discrimination is the practice of charging different prices to
different customers even though cost of selling to each is the same.
different customers because the costs of selling are different.
the same customers because of changes in cost.
different countries because of tariffs and transportation costs.
28.
A)
B)
C)
D)
It is easier for a monopolist to price discriminate between groups for a service than for a product because
it is easier to calculate average willingness-to-pay for services.
it is easier to distinguish between groups of customers for services than customers for products.
it is easier for consumers to resell products than services.
customers for products usually do not differ with respect to their average willingness-to-pay.
29.
A)
B)
C)
D)
Which of the following is true for a perfect price-discriminating monopoly?
P = MR for each unit sold.
P = ATC for each unit sold.
P = MC for each unit sold
P > MC for each unit sold.
.30.
a)
b)
c)
The graph below represents the cost curves for a perfectly competitive firm.
At what level of output does diminishing marginal returns begin for the firm?
If the market price is $65 per unit, how many units will the profit maximizing firm produce?
If the market price is $30 per unit, how many units of output will the profit maximizing firm produce?
MC
$
ATC
65
AVC
51
50
35
30
20
40
50
60
70
QUANTITY
31.
a)
b)
c)
The graph below depicts a single-priced monopolist.
What level of output maximizes the firm's profits?
What single price will the profit maximizer charge?
How much profit will the firm earn at the above price and quantity?
$
MC
ATC
42
35
30
20
D
60 70 80 90
QUANTITY
MR