Question 1

One reason that variable factors of production tend to show diminishing returns in the short run is that:

Accepted Answer

A) capital equipment is often idle in the short run. 
B) there is only so much that can be produced using additional variable inputs when some factors of production are fixed. 
C) large firms cannot effectively manage their resources. 
D) the cost of employing additional resources increases as firms employ more of those resources. 
A) capital equipment is often idle in the short run. 
B) there is only so much that can be produced using additional variable inputs when some factors of production are fixed. 
C) large firms cannot effectively manage their resources. 
D) the cost of employing additional resources increases as firms employ more of those resources.

Question 2

Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. $$\begin{array} { | c | c | } 
\hline \text { Number of Cales Per Day } & \text { Tatal Cast Per Day } \
\hline 0 & \$ 100 \
\hline 1 & \$ 180 \
\hline 2 & \$ 220 \
\hline 3 & \$ 300 \
\hline 4 & \$ 400 \
\hline 5 & \$ 520 \
\hline 6 & \$ 660 \
\hline
\end{array}$$  
If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $95 each, then at her profit-maximizing level of output, Sarah will earn a ________ of ________ per day.

Accepted Answer

A) loss; $100 
B) loss; $15 
C) profit; $15 
D) profit; $285 
A) loss; $100 
B) loss; $15 
C) profit; $15 
D) profit; $285

Question 3

Refer to the accompanying figure. When this market is in equilibrium, total producer surplus in the market is ________ per day.

Accepted Answer

A) $500 
B) $375 
C) $250 
D) $0 
A) $500 
B) $375 
C) $250 
D) $0

Question 4

Suppose that when a firm produces the level of output at which price equals marginal cost, the firm's total revenue is less than its variable cost. In this case, the firm should:

Accepted Answer

A) not change its level of output even if it's earning an economic loss in the short run. 
B) shut down. 
C) produce more so that its total revenue increases. 
D) purchase more fixed factors of production. 
A) not change its level of output even if it's earning an economic loss in the short run. 
B) shut down. 
C) produce more so that its total revenue increases. 
D) purchase more fixed factors of production.

Question 5

Refer to the accompanying graph. If this firm is a price taker and the price of each unit of output is $9, then at its profit-maximizing level of output, this firm will earn a ________ of ________.

Accepted Answer

A) loss; $60 
B) loss; $300 
C) profit; $495 
D) profit; $900 
A) loss; $60 
B) loss; $300 
C) profit; $495 
D) profit; $900

Question 6

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, how much profit does this firm earn at its profit-maximizing level of output?

Accepted Answer

A) $500 
B) $800 
C) $1,200 
D) $1,600 
A) $500 
B) $800 
C) $1,200 
D) $1,600

Question 7

One implication of the shape of the demand curve facing a perfectly competitive firm is that:

Accepted Answer

A) if the firm increases its price above the market price, it will earn higher revenue. 
B) if the firm decreases its price below the market price, it will earn higher revenue. 
C) if the firm increases its price above the market price, it will earn zero revenue. 
D) the market would be unable to reach a new equilibrium if demand changed. 
A) if the firm increases its price above the market price, it will earn higher revenue. 
B) if the firm decreases its price below the market price, it will earn higher revenue. 
C) if the firm increases its price above the market price, it will earn zero revenue. 
D) the market would be unable to reach a new equilibrium if demand changed.

Question 8

When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25.When Acme Dynamite produces 250 units of output, its average variable cost is ________ and its average total cost is ________.

Accepted Answer

A) $8; $2 
B) $10; $10 
C) $10; $2 
D) $8; $10 
A) $8; $2 
B) $10; $10 
C) $10; $2 
D) $8; $10

Question 9

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each.    
When the pizzeria makes 100 pizzas per day, it earns an economic ________ of ________.

Accepted Answer

A) loss; $650 
B) profit; $650 
C) loss; $500 
D) profit; $1,150 
A) loss; $650 
B) profit; $650 
C) loss; $500 
D) profit; $1,150

Question 10

When plotting marginal and average cost curves, the ________ cost curve always crosses the ________ cost curve at its ________.

Accepted Answer

A) average fixed; marginal; minimum 
B) marginal; average total; minimum 
C) marginal; average variable; maximum 
D) average variable; marginal; maximum 
A) average fixed; marginal; minimum 
B) marginal; average total; minimum 
C) marginal; average variable; maximum 
D) average variable; marginal; maximum

Question 11

Suppose that when a perfectly competitive firm produces 500 units of output a day, it earns an economic loss. If the price of each unit of output is $1.50, then, in the short run, it's clear that this firm:

Accepted Answer

A) should shut down. 
B) should not shut down if its total variable cost is less than $750. 
C) is not maximizing its profit. 
D) should produce more than 500 units a day. 
A) should shut down. 
B) should not shut down if its total variable cost is less than $750. 
C) is not maximizing its profit. 
D) should produce more than 500 units a day.

Question 12

Refer to the accompanying table. It is clear that diminishing returns sets in after ________ workers per day.

Accepted Answer

A) 3 
B) 4 
C) 5 
D) 6 
A) 3 
B) 4 
C) 5 
D) 6

Question 13

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table.    
If we plot John's opportunity cost per window on the vertical axis and the number of windows cleaned each day on the horizontal axis, we will have John's ________ curve for window-cleaning services.

Accepted Answer

A) production possibilities 
B) supply 
C) benefit 
D) demand 
A) production possibilities 
B) supply 
C) benefit 
D) demand

Question 14

For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. What is this seller's reservation price for the 250ᵗʰ unit?

Accepted Answer

A) $2 
B) $4 
C) $8 
D) $14 
A) $2 
B) $4 
C) $8 
D) $14

Question 15

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table.    
The first hour John spends cleaning windows costs him ________ that he could have earned in the grocery store.

Accepted Answer

A) $2 
B) $7 
C) $14 
D) $18 
A) $2 
B) $7 
C) $14 
D) $18

Question 16

The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive.    In the graph above, the average variable cost curve is labeled ________, the average total cost curve is labeled ________, and the marginal cost curve is labeled ________.

Accepted Answer

A) A; B; C 
B) C; B; A 
C) B; C; A 
D) C; A; B 
A) A; B; C 
B) C; B; A 
C) B; C; A 
D) C; A; B

Question 17

Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. $$\begin{array} { | c | c | } 
\hline \text { Number of Cales Per Day } & \text { Tatal Cast Per Day } \
\hline 0 & \$ 100 \
\hline 1 & \$ 180 \
\hline 2 & \$ 220 \
\hline 3 & \$ 300 \
\hline 4 & \$ 400 \
\hline 5 & \$ 520 \
\hline 6 & \$ 660 \
\hline
\end{array}$$  
Sarah's fixed cost is ________ per day.

Accepted Answer

A) $10 
B) $20 
C) $100 
D) $200 
A) $10 
B) $20 
C) $100 
D) $200

Question 18

In general, when the price of a fixed factor of production increases:

Accepted Answer

A) the profit-maximizing price falls. 
B) marginal cost is unchanged. 
C) marginal cost increases. 
D) the profit-maximizing level of output increases. 
A) the profit-maximizing price falls. 
B) marginal cost is unchanged. 
C) marginal cost increases. 
D) the profit-maximizing level of output increases.

Question 19

Marginal cost is calculated as:

Accepted Answer

A) total revenue minus total costs. 
B) the change in output divided by the change in total costs. 
C) the percentage change in total costs divided by the percentage change in output. 
D) the change in total cost divided by the change in output. 
A) total revenue minus total costs. 
B) the change in output divided by the change in total costs. 
C) the percentage change in total costs divided by the percentage change in output. 
D) the change in total cost divided by the change in output.

Question 20

In which of the following markets do firms sell the same standardized product?

Accepted Answer

A) Four-door cars 
B) 2% milk 
C) Desktop computers 
D) Sandwiches 
A) Four-door cars 
B) 2% milk 
C) Desktop computers 
D) Sandwiches

Exam 6: Perfectly Competitive Supply

One reason that variable factors of production tend to show diminishing returns in the short run is that:

Refer to the accompanying figure. When this market is in equilibrium, total producer surplus in the market is ________ per day.

Suppose that when a firm produces the level of output at which price equals marginal cost, the firm's total revenue is less than its variable cost. In this case, the firm should:

Refer to the accompanying graph. If this firm is a price taker and the price of each unit of output is $9, then at its profit-maximizing level of output, this firm will earn a ________ of ________.

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, how much profit does this firm earn at its profit-maximizing level of output?

One implication of the shape of the demand curve facing a perfectly competitive firm is that:

When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25.When Acme Dynamite produces 250 units of output, its average variable cost is ________ and its average total cost is ________.

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. When the pizzeria makes 100 pizzas per day, it earns an economic ________ of ________.

When plotting marginal and average cost curves, the ________ cost curve always crosses the ________ cost curve at its ________.

Suppose that when a perfectly competitive firm produces 500 units of output a day, it earns an economic loss. If the price of each unit of output is $1.50, then, in the short run, it's clear that this firm:

Refer to the accompanying table. It is clear that diminishing returns sets in after ________ workers per day.

For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. What is this seller's reservation price for the 250ᵗʰ unit?

The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive. In the graph above, the average variable cost curve is labeled ________, the average total cost curve is labeled ________, and the marginal cost curve is labeled ________.

In general, when the price of a fixed factor of production increases:

Marginal cost is calculated as:

In which of the following markets do firms sell the same standardized product?

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

Refer to the accompanying graph. If this firm is a price taker and the price of each unit of output is $9, then at its profit-maximizing level of output, this firm will earn a of .

When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25.When Acme Dynamite produces 250 units of output, its average variable cost is and its average total cost is .

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. When the pizzeria makes 100 pizzas per day, it earns an economic of .

When plotting marginal and average cost curves, the cost curve always crosses the cost curve at its .

The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive. In the graph above, the average variable cost curve is labeled , the average total cost curve is labeled , and the marginal cost curve is labeled .