EC 5515 - Swing The Bat Quiz 5

EC 5515 - Swing The Bat Quiz 5

By continuing to operate when price is greater than average variable cost but less than average total cost, a firm limits its losses to:

$0.

its total fixed costs.

the difference between its total fixed cost and the amount by which total revenue exceeds total variable costs.

its total variable costs.

the difference between its total fixed cost and the amount by which total revenue exceeds total variable costs.

Below, the graph on the left shows the short-run marginal cost curve for a typical firm selling in a perfectly competitive industry. The graph on the right shows current industry demand and supply.

If the firm’s demand and marginal revenue curves were drawn in the left-hand graph, what would be the elasticity of demand?

zero

-6

-0.6

infinitely elastic

unitary

infinitely elastic

If a firm shuts down in the short run, it will:

incur losses equal to its fixed costs.

produce at the output level where MC = MR.

reduce its losses to zero.

do this because P > AVC.

have total revenue greater than total fixed costs.

incur losses equal to its fixed costs.

Consider a firm that employs some resources that are owned by the firm. When accounting profit is zero, economic profit:

must also equal zero.

is sure to be positive.

will likely be negative.

cannot be computed accurately, but the firm is breaking even nonetheless.

will likely be negative.

A firm's cost and marginal revenue curves

In the figure, product price in this market is fixed at $35. This firm is currently operating where MR = MC. What do you advise this firm to do?

This firm should shut down.

This firm could increase profits by increasing output.

This firm could increase profits by decreasing output.

This firm should continue to operate at its current output.

This firm should decrease price.

This firm should continue to operate at its current output.

Marginal revenue and cost per unit curves

In the figure, if the price of the firm's product is $20 per unit, the firm will produce:

20 units per day.

40 units per day.

60 units per day.

80 units per day.

60 units per day.

A perfectly competitive firm will maximize profits (or minimize losses) so long as price (marginal revenue) is:

greater than marginal cost.

greater than average fixed cost.

greater than average total cost.

greater than average variable cost.

greater than average variable cost.

Cost per unit curves

In the figure, if the price of the firm's product is $2.00 per unit, the firm will produce:

5 units per day.

10 units per day.

15 units per day.

20 units per day.

15 units per day.

The graph below shows demand and marginal cost for a perfectly competitive firm. If the firm is producing 300 units of output, decreasing output by one unit would ______ the firm’s profit by $______.

decrease, $2

increase, $2

increase, $3

decrease, $5

increase, $5

increase, $2

Suppose Marv, the owner-manager of Marv's Hot Dogs, earned $82,000 in revenue last year. Marv's explicit costs of operation totaled $36,000. Marv has a Bachelor of Science degree in mechanical engineering and could be earning $40,000 annually as mechanical engineer.

Marv's implicit cost of using owner-supplied resources is $36,000.

Marv's economic profit is $36,000.

Marv's implicit cost of using owner-supplied resources is $30,000.

Marv's economic profit is $6,000.

Marv's economic profit is $6,000.

The graph above shows cost curves for a perfectly competitive firm. If market price is $3, how much profit will the firm earn?

$200

-$200

$400

-$400

-$400

Marginal revenue and cost per unit curves

The firm shown in the figure will:

produce where marginal cost equals marginal revenue.

be a price taker.

not produce below a price of OA.

all of these.

all of these.

Widgets R Us, which is a price-taking firm, is currently producing 250 units of output. The market price is $3 per unit, the marginal cost of the 250th unit is $2.75, average total cost is $3.50 per unit, and average variable cost is $2.50 per unit. What advice should you give Widgets R Us?

Increase output to reduce losses.

Continue to produce 250 units in the short run.

Shut down to minimize losses.

Decrease output to 200 units.

Increase output to reduce losses.

If a perfectly competitive firm sells 50 units of output at a market price of $10 per unit, its marginal revenue is:

more than $10.

less than $10.

$10.

$500.

$10.

Marginal revenue and cost per unit curves

As shown in the figure, the firm will not produce in the short-run if the price is below:

OA.

OB.

OC.

OD.

OA.

The accountant's definition of profits, or the definition used for tax purposes, is not wholly satisfactory from the economist's point of view because:

accountants are paid by business firms and consequently tend to exaggerate the size of profits.

accountants deal with empirical data while economists are interested in theoretical explanations.

accountants tend to minimize profits in order to avoid the payment of unnecessary taxes.

accounting costs do not include the value of all forgone opportunities.

accounting costs do not include the value of all forgone opportunities.

Which of the following CANNOT be true at any output along a perfectly competitive firm's short-run supply curve?

Average total cost is greater than marginal cost.

Marginal cost is greater than average total cost.

Average variable cost is greater than marginal cost.

Marginal cost is greater than average variable cost.

Average variable cost is greater than marginal cost.

All else constant, as the amount of a firm's implicit costs increases, the difference between economic profit and accounting profit will:

increase.

stay the same.

decrease.

cannot be determined without more information.

increase.

The figure above shows cost curves for a perfectly competitive firm. A profit-maximizing firm will break even when market price is:

$0.60

$0.80

$1.50

$1.60

$1.50

The demand curve faced by the individual perfectly competitive firm is:

downward sloping.

upward sloping.

horizontal.

vertical.

horizontal.