Question 1

Decreasing cost industries have supply curves that slope downward forever.

Accepted Answer

A) True 
 B)False

Question 2

In a constant cost industry, many firms can expand or contract without a change in costs.

Accepted Answer

A) True 
 B)False

Question 3

A firm should enter an industry if total revenue is equal to total cost.

Accepted Answer

A) True 
 B)False

Question 4

The change in total revenue from selling an additional unit is called:

Accepted Answer

A)  average revenue. 
B)  marginal revenue. 
C)  marginal cost. 
D)  variable cost. 
A)  average revenue. 
B)  marginal revenue. 
C)  marginal cost. 
D)  variable cost.

Question 5

If marginal revenue is less than marginal cost, a firm should:

Accepted Answer

A)  hold output steady. 
B)  increase output. 
C)  decrease output. 
D)  lower its price. 
A)  hold output steady. 
B)  increase output. 
C)  decrease output. 
D)  lower its price.

Question 6

The oil industry is an increasing cost industry because:

Accepted Answer

A)  expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations. 
B)  people buy more oil at lower prices. 
C)  because oil is a necessity good. 
D)  All of these statements are correct. 
A)  expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations. 
B)  people buy more oil at lower prices. 
C)  because oil is a necessity good. 
D)  All of these statements are correct.

Question 7

A strawberry farmer has 5,000 pounds of strawberries ready to harvest. The cost of picking and transporting the strawberries to the market is $3,500. If the market pays $0.60 per pound of strawberries, what should the strawberry farmer do?

Accepted Answer

A)  pick and sell the strawberries to recover the fixed costs of planting 
B)  not make a decision until he knows something about average costs 
C)  pick and sell the strawberries, since doing so increases profits by $500 
D)  not pick and sell the strawberries, since doing so would reduce profits by $500 
A)  pick and sell the strawberries to recover the fixed costs of planting 
B)  not make a decision until he knows something about average costs 
C)  pick and sell the strawberries, since doing so increases profits by $500 
D)  not pick and sell the strawberries, since doing so would reduce profits by $500

Question 8

Marginal cost is the change in total cost from producing an additional unit of output.

Accepted Answer

A) True 
 B)False

Question 9

A firm maximizes profits when:

Accepted Answer

A)  total revenue equals total cost. 
B)  average revenue equals average cost. 
C)  marginal revenue equals marginal cost. 
D)  fixed revenue equals fixed cost. 
A)  total revenue equals total cost. 
B)  average revenue equals average cost. 
C)  marginal revenue equals marginal cost. 
D)  fixed revenue equals fixed cost.

Question 10

Which of the following is NOT a key decision that a firm must make?

Accepted Answer

A)  what price to set 
B)  what quantity to produce 
C)  where to produce 
D)  when to enter and exit an industry 
A)  what price to set 
B)  what quantity to produce 
C)  where to produce 
D)  when to enter and exit an industry

Question 11

According to the text, the demand curve for oil from a particular stripper well is:

Accepted Answer

A)  flat. 
B)  vertical. 
C)  upward-sloping. 
D)  downward-sloping. 
A)  flat. 
B)  vertical. 
C)  upward-sloping. 
D)  downward-sloping.

Question 12

Programs such as Steam distribute more and more video games. Purchasers buy the game and download it immediately to their computer. If the entire system is automated, estimate the marginal cost of producing and selling video games this way (ignore electricity costs).

Accepted Answer

A)  zero 
B)  the price of the game 
C)  proportional to the cost to make the game 
D)  None of the answers is correct. 
A)  zero 
B)  the price of the game 
C)  proportional to the cost to make the game 
D)  None of the answers is correct.

Question 13

Figure: Profit Maximizing Output   Use the figure. The profit-maximizing output for this firm is:

Accepted Answer

A)  40. 
B)  3. 
C)  6. 
D)  9. 
A)  40. 
B)  3. 
C)  6. 
D)  9.

Question 14

If the market price in a competitive market is $10, and a firm's marginal cost (MC) is given by MC = 0.50Q, where Q is units of output, this firm should produce 20 units of output to maximize profit.

Accepted Answer

A) True 
 B)False

Question 15

Average total cost is equal to total cost divided by profit.

Accepted Answer

A) True 
 B)False

Question 16

Which kind of industry would have a downward-sloping long-run supply curve?

Accepted Answer

A)  a constant cost industry 
B)  an increasing cost industry 
C)  a decreasing cost industry 
D)  no industry 
A)  a constant cost industry 
B)  an increasing cost industry 
C)  a decreasing cost industry 
D)  no industry

Question 17

The long run is the period before exit and entry can occur.

Accepted Answer

A) True 
 B)False

Question 18

In competitive markets, the demand curve faced by the individual firm is:

Accepted Answer

A)  equal to the market demand curve. 
B)  perfectly elastic. 
C)  perfectly inelastic. 
D)  downward sloping. 
A)  equal to the market demand curve. 
B)  perfectly elastic. 
C)  perfectly inelastic. 
D)  downward sloping.

Question 19

The difference between the long run and the short run is that in the long run, marginal cost equals marginal revenue for all firms in the economy.

Accepted Answer

A) True 
 B)False

Question 20

Use the following to answer questions:
Figure: Costs of Oil Production  
-(Figure: Costs of Oil Production) Refer to the figure. Assuming that price equals marginal cost, the profit of producing eight barrels of oil is:

Accepted Answer

A)  $160. 
B)  $240. 
C)  $400 
D)  It cannot be determined from the information given. 
A)  $160. 
B)  $240. 
C)  $400 
D)  It cannot be determined from the information given.

Exam 11: Costs and Profit Maximization Under Competition

Decreasing cost industries have supply curves that slope downward forever.

In a constant cost industry, many firms can expand or contract without a change in costs.

A firm should enter an industry if total revenue is equal to total cost.

The change in total revenue from selling an additional unit is called:

If marginal revenue is less than marginal cost, a firm should:

The oil industry is an increasing cost industry because:

A strawberry farmer has 5,000 pounds of strawberries ready to harvest. The cost of picking and transporting the strawberries to the market is $3,500. If the market pays $0.60 per pound of strawberries, what should the strawberry farmer do?

Marginal cost is the change in total cost from producing an additional unit of output.

A firm maximizes profits when:

Which of the following is NOT a key decision that a firm must make?

According to the text, the demand curve for oil from a particular stripper well is:

Programs such as Steam distribute more and more video games. Purchasers buy the game and download it immediately to their computer. If the entire system is automated, estimate the marginal cost of producing and selling video games this way (ignore electricity costs).

Figure: Profit Maximizing Output Use the figure. The profit-maximizing output for this firm is:

If the market price in a competitive market is $10, and a firm's marginal cost (MC) is given by MC = 0.50Q, where Q is units of output, this firm should produce 20 units of output to maximize profit.

Average total cost is equal to total cost divided by profit.

Which kind of industry would have a downward-sloping long-run supply curve?

The long run is the period before exit and entry can occur.

In competitive markets, the demand curve faced by the individual firm is:

The difference between the long run and the short run is that in the long run, marginal cost equals marginal revenue for all firms in the economy.

Use the following to answer questions: Figure: Costs of Oil Production -(Figure: Costs of Oil Production) Refer to the figure. Assuming that price equals marginal cost, the profit of producing eight barrels of oil is:

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

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