Econ Test #3

Question 1

In the long run, all resource inputs are fixed instead of variable

Answer 1

False

Question 2

Variable costs are:

Answer 2

costs that change with the level of production.

Question 3

The break-even point means that the firm is realizing economic profits

Answer 3

False

Question 4

In the short run, a competitive firm will not produce unless price is equal to average total costs.

Answer 4

False

Question 5

Productive efficiency refers to:

Answer 5

cost minimization, where P = minimum ATC

Question 5

Diseconomies of scale are caused by the law of diminishing marginal returns.

Answer 5

False

Question 6

The long-run average total cost is also known as

Answer 6

a planning curve.

Question 7

In the above figure, curves 1, 2, 3, and 4 represent the:

Answer 7

MC, ATC, AVC, and AFC curves respectively.

Question 8

Productive efficiency refers to long-run market conditions where marginal cost is equal
to marginal revenue.

Answer 8

False

Question 9

Marginal revenue for a purely competitive firm:

Answer 9

is equal to price.

Question 10

A purely competitive seller is:

Answer 10

a “price taker.”

Question 11

Which is not a basic market model?

Answer 11

free enterprise

Question 12

Based on the graph above, the firm is earning:

Answer 12

zero economic profits

Question 13

Economies and diseconomies of scale explain why the:

Answer 13

long-run average total cost curve is typically U-shaped.

Question 14

Lauren is the owner of a bakery. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. If she could earn $53,000 working for another bakery nearby, we know that economic profit was:

Answer 14

$0.00

Question 15

The short-run marginal-cost curve is upward-sloping because of the law of diminishing marginal returns.

Answer 15

True

Question 16

Refer to the above graphs. Which statement is true?

Answer 16

The firm is experiencing economic losses.

Question 17

When diseconomies of scale occur:

Answer 17

the long-run average total cost curve rises.

Question 18

Which of the following is not a basic characteristic of pure competition?

Answer 18

considerable nonprice competition

Question 19

The perfectly competitive firms is better off producing in the short run than not producing so long as there is an output rate at which

Answer 19

marginal revenue exceeds average variable costs.

Question 20

The demand curves for firms in a purely competitive industry are perfectly elastic.

Answer 20

True

Question 21

In the above diagram curves 1, 2, and 3 represent:

Answer 21

total fixed cost, total variable cost, and total cost respectively.

Question 22

The long run is characterized by:

Answer 22

the ability of the firm to change its plant size.

Question 23

One difference between implicit costs and explicit costs is that:

Answer 23

explicit costs are included in accounting profits, whereas implicit costs are not.

Question 24

Which of the following curves is not U-shaped?

Answer 24

AFC

Question 25

Refer to the above diagram. This firm will earn only a normal profit if product price is:

Answer 25

P3

Question 25

Refer to the above diagram. The firm will shut down at any price less than:

Answer 25

P1

Question 25

Refer to the above diagram. The firm will realize an economic profit if price is:

Answer 25

P4

Question 26

Refer to the above diagram. The firm will produce at a loss if price is:

Answer 26

P2

Question 27

Which statement is correct?

Answer 27

In the long run the plant capacity is variable

Question 28

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:

Answer 28

will also be $5

Question 29

The basic characteristic of the short run is that:

Answer 29

the firm does not have sufficient time to change the size of its plant.

Question 30

A purely competitive firm's short-run supply curve is:

Answer 30

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

Question 31

Which of the following will not hold true for a competitive firm in long-run equilibrium?

Answer 31

P equals AFC

Question 32

The long-run average total cost curve:

Answer 32

is based on the assumption that all resources are variable.

Question 33

Refer to the above diagram. Economies of scale:

Answer 33

occur over the 0Q1 range of output.

Question 34

Refer to the above diagram. Diseconomies of scale:

Answer 34

begin at output Q3

Question 35

Refer to the above diagram. Minimum efficient scale:

Answer 35

is achieved at Q1

Question 36

Which statement is correct?

Answer 36

In long-run equilibrium a competitive firm will produce at the point of minimum average total costs.

Question 37

The law of diminishing returns explains why the long-run average total cost curve is U- shaped

Answer 37

False