FRQ
Assume that in a perfectly competitive market, a firm's costs and revenues are:
marginal cost = AVC at $20
marginal cost = ATC at $30
marginal cost = average revenue at $25
How will this firm determine the profit maximizing level of output?
In the short run, which of the following is true of a firm's average total cost of production?
a. It is equal to the marginal cost plus average variable cost
b. It is equal to marginal cost plus average variable cost
c. It is equal to the average fixed cost plus average variable cost
d. It always increases when a firm increases production
e. It is zero if the firm shuts down
C. It is equal to the average fixed cost plus average variable cost
The total variable cost of producing five units of output is
A. $ 6
B. $11
C. $30
D. $43
E. impossible to determine from the information given
C. $30
Which of the following must be true if at the tenth unit of output, marginal cost (MC) is $130 and average total cost (ATC) is $150?
a. ATC of producing the ninth unit is higher than $150
b. ATC of producing the ninth unit is less than $150
c. MC of producing the ninth unit is higher than $130
d. The average variable cost of producing the tenth unit is higher than $150
e. The average variable cost of producing the tenth unit is equal to $20
A. ATC of producing the ninth unit is higher than $150
Assume that in a perfectly competitive market, a firm's costs and revenues are:
marginal cost = AVC at $20
marginal cost = ATC at $30
marginal cost = average revenue at $25
What price will this firm charge? Explain how the firm determined this price.
Price = $25
The market/industry determines the price OR price may be used to link marginal revenue to average revenue
In the short run, the lowest price at which the firm will continue to produce is
a. $80
b. $74
c. $50
d. $35
e. $30
D. $35
If accounting profit is greater than zero for a firm in a competitive industry, then which of the following must be true?
A. The firm has no fixed cost.
B. The firm has positive economic profit.
C. The firm's total revenue exceeds its explicit cost
D. The firm's economic profit exceeds its opportunity cost.
E. New firms will enter the industry in the long run.
C. The firm's total revenue exceeds its explicit cost
Which of the following is a result of increasing returns to scale?
A. Downward-sloping marginal physical product of labor curve
B. Downward-sloping long-run average total cost curve
C. Diseconomies of scale
D. Diminishing returns
E. Upward-sloping short-run marginal cost curve
B. Downward-sloping long-run average total cost curve
Assume that in a perfectly competitive market, a firm's costs and revenues are:
marginal cost = AVC at $20
marginal cost = ATC at $30
marginal cost = average revenue at $25
Should this firm produce in the short run? Why or why not?
Yes, because P>AVC or TR<TC
Short-run marginal costs eventually increase because of the effects of
A. increasing marginal product
B. diminishing marginal product
C. diseconomies of scale
D. economies of scale
E. increasing fixed costs
A firm produces 400 books and sells each book for 15.If the explicit cost of producing the books is 4,500 and the implicit cost is $1,000, the firm's economic profit is
A. $0
B. $500
C. $1,000
D. $1,500
E. $5,000
B. $500
If a firm is experiencing economies of scale, which of the following will decrease as output increases?
A. Fixed cost
B. Long-run total cost
C. Long-run average total cost
D. Marginal cost
E. Marginal revenue
C. Long-run average total cost
Assume that in a perfectly competitive market, a firm's costs and revenues are:
marginal cost = AVC at $20
marginal cost = ATC at $30
marginal cost = average revenue at $25
Will this firm earn a profit or incur a loss? Why?
It will incur a loss because P<ATC or TR<TC
Which of the following MUST be true of the long run?
a. It is at least one year in duration
b. All factors of production are variable
c. At least one factor of production is fixed
d. Marginal costs are constant
e. ATC is constant
B. All factors of production are variable
Assume that all firms in a perfectly competitive market currently earn positive economic profits. What will happen in the long run if all firms face constant returns to scale in production?
A. The price of the product will increase.
B. Firms will exit the industry.
C. The quantity produced by each existing firm will decrease.
D. Average total cost of production will increase.
E. Nothing will change.
C. The quantity produced by each existing firm will decrease.
FormalWear is a clothing factory that hires workers as a variable input and rents sewing machines as a fixed input. Which of the following will happen when the marginal product of workers decreases?
A. Total variable cost will decrease.
B. Total fixed cost will increase.
C. Short-run average total cost will decrease.
D. Marginal cost will increase.
E. Marginal cost will equal average total cost.
D. Marginal cost will increase.
Which of the following is true for a perfectly competitive, decreasing-cost industry?
A. The price of inputs will decrease as the number of firms in the industry decreases.
B. The long-run market supply curve will be downward sloping.
C. Firms earn positive economic profit in the long run.
D. Firms do not have a shutdown condition.
E. There are no economies of scale.
B. The long-run market supply curve will be downward sloping.