Econ 2113 – Test 3A
Name________________________________
Dr. Rupp – Spring 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.
____
____
____
____
____
____
____
____
____
1. Which of the following goods is rival in consumption and excludable?
a. a slice of pizza
b. cable TV service
c. a sunset
d. national defense
2. If the local government in Richmond, Missouri, decides to put on a public fireworks display, the display
would be
a. excludable.
b. rival in consumption.
c. a public good.
d. All of the above are correct.
3. Which of the following goods is not rival in consumption and not excludable?
a. a hiking trail
b. a street light
c. a bicycle
d. a boat
4. The fish in the ocean are an example of a
a. common resource.
b. public good.
c. private good.
d. natural monopoly.
5. An example of a natural monopoly would be
a. cable TV service.
b. a tornado siren.
c. clothing.
d. the environment.
6. Private markets usually fail to provide lighthouses because
a. lighthouses cost too much to build relative to their benefits.
b. government intervention makes it hard for private lighthouse owners to compete in the
market.
c. ship captains have incentives to use lighthouses without paying.
d. lighthouses are valued very little by ship captains these days.
7. The Tragedy of the Commons occurs because
a. government property is most heavily used by the wealthy.
b. everyone deserves an equal share of government property.
c. social and private incentives differ.
d. established property rights create competition.
8. Those things that must be forgone to acquire a good are called
a. substitutes.
b. opportunity costs.
c. explicit costs.
d. competitors.
9. Which of the following would be categorized as an implicit cost?
(i)
forgone investment opportunities
(ii)
wages of workers
(iii)
raw materials costs
a. (i)
b. (ii)
c. (ii) and (iii)
d. (i) and (iii).
____ 10. 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.
____ 11. Economists normally assume that the goal of a firm is to
a. maximize its total revenue.
b. maximize its profit.
c. minimize its explicit costs.
d. minimize its total cost.
Scenario 13-2
Zach took $400,000 out of the bank and used it to start his new cookie business. The bank account pays 3
percent interest per year. During the first year of his business, Zach sold 6,000 boxes of cookies for $2.50 per
box. Also, during the first year, the cookie business incurred costs that required outlays of money amounting
to $9,000.
____ 12. Refer to Scenario 13-2. Zach's accounting profit for the year was
a. $-494,000.
b. $-6,000.
c. $6,000.
d. $12,000.
____ 13. Refer to Scenario 13-2. Zach's economic profit for the year was
a. $-506,000.
b. $-6,000.
c. $3,000.
d. $6,000.
____ 14. If a firm produces nothing, which of the following costs will be zero?
a. total cost
b. fixed cost
c. opportunity cost
d. variable cost
____ 15. Marginal cost tells us the
a. value of all resources used in a production process.
b. marginal increment to profitability when price is constant.
c. amount by which total cost rises when output is increased by one unit.
d. amount by which output rises when labor is increased by one unit.
____ 16. Diminishing marginal product suggests that the marginal
a. cost of an extra worker is unchanged.
b. cost of an extra worker is less than the previous worker's marginal cost.
c. product of an extra worker is less than the previous worker's marginal product.
d. product of an extra worker is greater than the previous worker's marginal product.
____ 17. When marginal cost is less than average total cost,
a. marginal cost must be falling.
b. average variable cost must be falling.
c. average total cost is falling.
d. average total cost is rising.
____ 18. Total cost can be divided into two types of costs. Those two types are
a. fixed costs and variable costs.
b. fixed costs and marginal costs.
c. variable costs and marginal costs.
d. average costs and marginal costs.
Table 13-5
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
____ 19. Refer to Table 13-5. The average total cost of producing one widget is
a. $1.00.
b. $10.00.
c. $11.00.
d. $22.00.
____ 20. 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.
____ 21. When a firm is operating at the minimum efficient scale,
a. average variable cost is minimized.
b. average fixed cost is minimized.
c. average total cost is minimized.
d. marginal cost is minimized.
____ 22. For Firm A, when four units of output are produced, the total cost is $175 and the average variable cost is
$33.75. What would the average fixed cost be if ten units were produced?
a. $4
b. $10
c. $40
d. $135
____ 23. When firms are said to be price takers, it implies that if a firm raises its price,
a. buyers will go elsewhere.
b. buyers will pay the higher price in the short run.
c. competitors will also raise their prices.
d. firms in the industry will exercise market power.
____ 24. In a competitive market, no single producer can influence the market price because
a. many other sellers are offering a product that is essentially identical.
b. consumers have more influence over the market price than producers do.
c. government intervention prevents firms from influencing price.
d. producers agree not to change the price.
____ 25. Suppose a firm in a competitive market received $1,000 in total revenue and had a marginal revenue of $10
for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?
a. $5 and 50
b. $5 and 100
c. $10 and 50
d. $10 and 100
____ 26. Suppose that in a competitive market the market price is $2.50. What is marginal revenue for the last unit sold
by the typical firm in this market?
a. Less than $2.50.
b. More than $2.50.
c. $2.50.
d. The marginal revenue cannot be determined without knowing the actual quantity sold by
the typical firm.
Table 14-2
The following table presents cost and revenue information for Soper’s Port Vineyard.
COSTS
REVENUES
Quantity
Produced
Total
Cost
Marginal
Cost
Quantity
Demanded
Price
0
1
2
3
4
5
6
7
8
100
150
202
257
317
385
465
562
682
--
0
1
2
3
4
5
6
7
8
120
120
120
120
120
120
120
120
120
Total
Revenue
Marginal
Revenue
--
____ 27. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the marginal cost of
the 1st unit?
a. $50
b. $75
c. $80
d. $150
____ 28. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is Soper's Port
Vineyard's economic profit at their profit maximizing point?
a. $78
b. $243
c. $278
d. $375
____ 29. Which of the following firms is the closest to being a perfectly competitive firm?
a. A hot dog vendor in New York
b. Microsoft Corporation
c. Ford Motor Company
d. The campus bookstore
Figure 14-1
The graph below depicts the cost structure for a firm in a competitive market.
____ 30. Refer to Figure 14-1. When price rises from P2 to P3, the firm finds that
a. marginal cost exceeds marginal revenue at a production level of Q2.
b. if it produces at output level Q3 it will earn a positive profit.
c. expanding output to Q4 would leave the firm with losses.
d. it could increase profits by lowering output from Q3 to Q2.
____ 31. Refer to Figure 14-1. When price falls from P3 to P1, the firm finds that
a. fixed cost is higher at a production level of Q1 than it is at Q3.
b. it should produce Q1 units of output.
c. it should produce Q3 units of output.
d. it should shut down immediately.
____ 32. Refer to Figure 14-1. When price rises from P3 to P4, the firm finds that
a. fixed costs are lower at a production level of Q4.
b. it can earn a positive profit by increasing production to Q4.
c. profit is still maximized at a production level of Q3.
d. average revenue exceeds marginal revenue at a production level of Q4.
____ 33. The short-run supply curve for a firm in a perfectly competitive market is
a. horizontal.
b. likely to slope downward.
c. determined by forces external to the firm.
d. the portion of its marginal cost curve that lies above its average variable cost.
____ 34. In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is
to
a. shutdown if price is less than average total cost.
b. shutdown if price is greater than average total cost.
c. shutdown if average revenue is greater than average fixed cost.
d. shutdown if average revenue is greater than marginal cost.
____ 35. 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.
____ 36. 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.
____ 37. 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.
____ 38. If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal
cost, then
a. a one-unit increase in output will increase the firm's profit.
b. a one-unit decrease in output will increase the firm's profit.
c. total revenue exceeds total cost.
d. total cost exceeds total revenue.
____ 39. At the profit-maximizing level of output,
a. marginal revenue equals average total cost.
b. marginal revenue equals average variable cost.
c. marginal revenue equals marginal cost.
d. average revenue equals average total cost.
____ 40. A firm in a competitive market has the following cost structure:
Output
0
1
2
3
4
5
Total Cost
$5
$10
$12
$15
$24
$40
If the market price is $4, this firm will
a. produce two units in the short run and exit in the long run.
b. produce three units in the short run and exit in the long run.
c. produce four units in the short run and exit in the long run.
d. shut down in the short run and exit in the long run.
Figure 14-7
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 since test #2.
•
Your cell phone does not ring or vibrate during this test.
•
You are taking this test in class at the regularly scheduled time: (Tuesday, April 7)
____ 41. Refer to Figure 14-7. When the market is in long-run equilibrium at point A in panel (b), the firm
represented in panel (a) will
a. have a zero economic profit.
b. have a negative accounting profit.
c. exit the market.
d. choose to increase production to increase profit.